Seven Red Flags I See in High-Net-Worth Portfolios
The final catalyst for starting Bootpack came in March 2020, as COVID slammed markets worldwide.
My mother, 78, a widow, and heavily reliant on portfolio distributions, called me, clearly distraught. Her portfolio was down more than 40%. That didn’t make sense given her situation.
I was shocked and appalled by what I saw. Her “big box” advisor had her effectively 100% concentrated in a single mid-cap stock strategy, charging roughly 2.5% per year—highway robbery.
At the exact moment she could least afford it, her portfolio was taking risks that had no connection to her life, her needs, or her goals. I remember thinking: How does this happen?
Not every portfolio I review for prospective clients is this egregious, but after reviewing hundreds over the years, I have realized this was not an isolated case. The same patterns show up again and again. These are structural flaws that quietly erode performance and signal a deeper misalignment between investors and their advisors.
This is not an all-inclusive list, but rather a set of common patterns I see across high-net-worth portfolios. In many cases, they can quietly cost investors millions over time through unnecessary fees, taxes, and missed opportunities.
Here are the ones I see most often in high-net-worth portfolios:
1) Paying for Active Management Without Getting Active Results
Whether it is a mutual fund, a managed account, or a collection of individual stocks, the question is the same: Are you actually getting something different, and better, than the benchmark?
Too often, I see portfolios filled with:
- High-cost mutual funds that closely track an index
- Stock-picking managed accounts that charge meaningful fees but deliver similar results
- Individual stocks selected by advisors without a clear edge or process
The end result:
- Index-like performance
- Higher fees
- More taxes
That is a tough combination to justify. Data from S&P Dow Jones Indices’ SPIVA (S&P Indices Versus Active) reports, which track how active managers perform relative to their benchmarks, have shown that in many cases 80 to 90% of active managers have underperformed over longer time periods, particularly after fees.
If you want benchmark-like returns, keep costs low and focus on tax efficiency. There is often a low-cost ETF that can deliver similar—and in many cases better—results.
If you’re going to be active, there should be a clear edge, a disciplined process, and a defined role in the portfolio.
Signal of misalignment: You’re invested in higher-cost funds delivering benchmark-like results, where the fee structure may benefit the advisor and their firm more than it benefits you.
2) Proprietary Funds
If your portfolio is filled with your advisor’s firm-branded funds, it is worth asking why.
An advisor’s job is to find the best opportunities available, not distribute in-house products. It is a bit like walking into a Ford dealership and asking for the best car on the market. You are going to get a Ford.
Signal of misalignment: The portfolio reflects what is convenient for the firm, not what is best for you.
3) No Clear Benchmark or Clear Accounting of Fees
Every portfolio report should clearly answer two basic questions: What are we trying to achieve, and what is it costing us?
Too often, I see reports where:
- There is no defined benchmark, or it shifts over time
- Performance is presented without a consistent frame of reference
- Fees are layered, opaque, or not fully disclosed
Between advisory fees, underlying manager fees, and tax drag, the true cost is often significantly higher than what is being communicated. Without a clear benchmark and a clear understanding of fees, it becomes very difficult to answer: Are you actually getting value for what you are paying?
Signal of misalignment: Your report does not clearly show your benchmark, your total cost, and how the two relate to each other.
4) Alternative Investments Without True Access
Private equity, hedge funds, and venture capital can be valuable, but they are not generic asset classes.
They are an access class.
A relatively small group of top-performing managers has historically driven a large share of returns. Access is limited and relationship driven. The wrong funds can underperform public markets, with less liquidity and higher fees.
I spent over 20 years in the alternatives industry at firms like The Carlyle Group, Renaissance Technologies, and Deutsche Bank and can affirmatively say that even well-resourced institutions can find it difficult to consistently identify top-tier managers and add value in this space.
And once you are in, you are often in for a long time. Think of it as the Hotel California of investing. You can check out anytime you like, but exiting can take 10 to 15 years.
Signal of misalignment: Exposure to alternatives without clear access, manager selection edge, or a defined role in the overall portfolio.
5) Overengineered Life Insurance Strategies
Insurance has an important role, particularly in estate planning.
But I often see:
- Oversized policies
- Complex structures
- Heavy use of Whole Life and Universal Life policies positioned as investment solutions
When financial advice starts at an insurance company, the outcome is often more insurance. These products can be appropriate in specific situations. But too often, they are used where simpler, more flexible approaches would be more aligned with the client’s goals.
Signal of misalignment: The strategy appears product driven rather than problem driven.
6) No Clear Plan for Concentrated Positions
Nearly every high-net-worth portfolio carries meaningful concentration. A single stock, a founder’s position, or an inherited holding with a very low cost basis.
The concentration itself is not the problem. The absence of a plan is.
In many cases, these positions are left untouched for two reasons. First, addressing them often involves realizing taxes, which can be uncomfortable in the short term. Second, managing concentrated positions requires specialized tools and experience that not every advisor brings to the table.
Too often, I see:
- No defined trimming strategy
- No tax-aware transition plan
- No risk management framework
So the position simply sits. Over time, it often becomes the largest single risk in the portfolio.
A thoughtful approach draws on tools that do not always get surfaced proactively:
- Exchange funds to defer gains while diversifying exposure
- Options-based hedging to manage downside without triggering a taxable event
- Tax-aware long/short strategies that may help offset gains while maintaining market exposure
- Donor-advised funds or charitable remainder trusts to convert appreciated stock into diversified income with a favorable tax outcome
Each approach involves real trade-offs. The right answer depends on the holding, the cost basis, the time horizon, and what the position represents beyond its dollar value.
What is not acceptable is the absence of a framework.
Signal of misalignment: The portfolio reflects history, not a forward-looking plan.
7) High-Income Strategies in High-Tax Environments
This is a common mismatch for high-income investors, especially in states like New York and California.
I often see portfolios generating:
- High levels of interest income
- Credit or income-focused strategies
- Fully taxable distributions
What gets overlooked is what the client actually keeps. At the highest federal and state tax brackets, it is not unusual for investors to take home less than 50 percent of that income after taxes.
So a strategy that looks attractive on paper, say 6 to 7 percent yield, can be far less compelling on an after-tax basis.
In many cases, a well-diversified, low-cost municipal bond portfolio may be a better fit, depending on the investor’s tax situation.
Signal of misalignment: The portfolio is optimized for pre-tax income, not what the client actually keeps.
If you recognize a few of these in your own portfolio, you are not alone.
The answer is not to overhaul everything overnight. It is to step back and rebuild with intention.
A few principles I have found consistently lead to better outcomes:
- Focus on after-tax income, not just yield
- Lower costs where they do not add value
- Simplify wherever possible
- Be selective with alternatives
- Have a plan for concentrated positions
- Work with an advisor who is truly aligned
If nothing else, this is a useful exercise: Ask your advisor to walk you through your entire portfolio, line by line, and explain, in plain English, why each holding is there.
What it does.
Why you own it.
What role it plays.
What it costs.
If that conversation feels unclear, overly complex, or unsatisfying, it may be time for a second opinion.