January 27, 2020

Practice Time “Portfolio”

Practice Time “Portfolio”
Chad Soileau

For many, the start of a new year is a time when we typically begin the process of evaluating our past year’s accomplishments as well as failures. This usually leads us into the process of identifying our focuses and planning our activities for the coming year.

As you know, in the financial services industry, there are three terms that are commonly used to describe disciplines in investment philosophy and risk management.

Diversification, Allocation and Rebalancing

Is it safe to say that many of you have probably heard all three of these terms before?

I feel confident saying that you have, and that your thoughts immediately associate each of those terms exclusively with Investment Management Strategies and Principals.

And if so, you would be correct in your thoughts.

However, in this month’s letter, I’d like to take a different look at the application of each and explore the idea that when the same principals are applied to your practice, each can potentially have a profound effect on your efforts to run a more appropriately focused and successful business.

For the sake of clarity and continuity, let’s level set everything by starting with a few definitions.

As defined by Investopedia:

  • Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk.

  •  Asset Allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon. 

  • Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk.

With that, we can now look at applying those terms into the management of your practice.
Let’s start by asking ourselves a few questions in regards to these principals.


Am I diversified in my focus and activities?

Similar to an investment portfolio, it’s a good idea to not be overly invested in any one focus. Having diversification will ensure that you are not putting all of your proverbial “Focus and Attention Eggs in One Basket”.

A typical practice will have several focuses that are similar to the following: Existing clients, Marketing, Prospecting, Service/Administrative work, Education/Continued Learning and Personal time.

In the short term, it may be necessary to exclude or dedicate less time to several of your focuses. However, doing so for longer periods of time may unnecessarily expose your practice to unwanted results and unintended risks.


Have I appropriately allocated my focus and attention accordingly?

You may be diversified in your focus and activities, but that does not mean you are properly allocating the time and attention that is needed for each focus.

In terms of your practice, attention and efforts are typically allocated accordingly to goals within those focuses. Like an investment portfolio, there are allocations of time and attention with certain focuses and activities that require your attention at different levels at different times throughout the year.

And Third:

Over time, have my focuses and activities stayed diversified and allocated accordingly?

Similar to an investment portfolio, as time goes by, certain areas will drift from their mean and become overweight or underweight in your attention and activities.

While this is a normal occurrence, you would want to ask yourself; Will being out of balance over a long period of time prove to be detrimental to your practices’ success? The answer to that question is uniquely yours and has to be answered by periodic review and adjustment.

With that said, your focus and activities can easily become out of balance and disproportioned to what you had originally planned. The idea is that you are at least aware of where you are and are able to evaluate if there is a need for any necessary adjustments.

As with investment strategies, reducing risk and maximizing returns by paying attention to your diversification of focuses, activities and rebalancing when needed, will prove to be a good “best practice” over time and can potentially have a profound effect on your efforts to run a more appropriately focused and successful business.