Case Study: Wealth Management Firm’s Portfolio Mismanagement

# Restructuring a Retirement Portfolio: A Case Study

When it comes to managing a retirement portfolio, it is crucial to ensure that the investments are aligned with the client’s goals, risk profile, and investment horizon. Recently, Truemind Capital took on a new client with a portfolio of around INR 50 Crores, previously managed by a renowned wealth management company. Upon conducting a thorough portfolio health check-up, several concerning issues were identified.

The portfolio consisted of nearly 50 products, with a significant allocation in Alternative Investment Funds (AIFs) and debt instruments. Despite the equity market rally in the past decade, the portfolio only yielded annualized returns of around 10%. One of the most alarming discoveries was the fact that all investments were in commission-based regular plans, generating an annual commission of at least INR 50 Lakhs for the wealth management company, unbeknownst to the client.

## What Went Wrong with the Portfolio?

### Over-diversification:
The portfolio was excessively diversified, with a large number of products managed by different fund managers. This not only lacked focus but also led to unnecessary complexity in the portfolio construction.

### Low Returns:
Despite favorable market conditions, the portfolio underperformed, primarily due to poor-performing equity investments and a lack of active management to switch to better-performing options.

### Low Liquidity:
The portfolio’s exposure to illiquid investments, such as AIFs and locked-in debt products, limited the client’s ability to swiftly adjust the allocation based on market opportunities.

### Unsuitable Portfolio Construction:
The allocation of high-risk AIFs and inadequate debt holdings did not align with the client’s moderate risk profile and retirement planning objectives.

## Portfolio Restructuring Approach

Truemind Capital implemented the following changes to address the shortcomings in the client’s portfolio:

– **Asset Allocation Alignment:** Aligned the overall asset allocation strategy with the client’s risk profile and investment objectives.

– **Shift to Zero-commission Direct Plans:** Transitioned all investments to direct plans of mutual funds, PMS, and AIFs to eliminate hefty commission payouts and enhance portfolio gains.

– **Minimize Shifting Costs:** Removed underperforming funds while minimizing tax and exit load impacts.

– **Focused Portfolio:** Consolidated the number of products to 14, based on risk profile and conviction in fund managers.

Although the restructuring process required time and effort, the outcome was a satisfied client with a streamlined and optimized retirement portfolio.

For more information on Truemind Capital’s investment management services and personal finance advisory, you can reach out to them at [[email protected]]([email protected]) or call 9999505324.

## FAQ

### 1. How many products should ideally be in a portfolio?
An ideal portfolio should not have more than 15 products, with a maximum of 20 in certain cases, to maintain focus and generate better returns.

### 2. What are the risks of over-diversification in a portfolio?
Over-diversification can lead to a lack of focus, unnecessary complexity, and lower-than-expected returns, as the investments are spread across multiple products.

### 3. Why is it important to align asset allocation with the client’s risk profile?
Aligning asset allocation with the client’s risk profile ensures that the portfolio is suitable for their investment objectives and helps in managing risk effectively.

In conclusion, managing a retirement portfolio requires a strategic approach that considers the client’s goals, risk tolerance, and market conditions. By addressing the key issues in the client’s portfolio and implementing a tailored restructuring plan, Truemind Capital was able to create a more efficient and suitable investment strategy for their client’s retirement needs.

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