Just a quick comment before I have had a chance to read the actual study highlighted above.

If advisors want to stress the "relationship" more than the performance of the portfolio, maybe it would be a good thing if the advisor spent less time focused on performance and investment selection and the whole process of managing porfolios. I would venture to say that most of us base our fees on AUM and hence on the performance of assets. Most of us send out quarterly performance reports to clients and perhaps provide commentary about the performance of the clients' portfolio. Most of us spend a lot of our time discussing economic and market conditions with clients and its effect on porfolios. Most of us devote a considerable amount of time to managing portfolios -- perhaps most of our time. With all of this emphasis on performance and assets, is it any wonder that clients would as well.

Perhaps we need to rethink where we put our actual efforts and what we actually communicate to clients with our actions if we want to change what clients focus on as important.

I also agree with Mitch. Both clients and advisors focus too much on performance as the only thing that matters. Performance is definitely important. But it can easily be negated by other risks that families and advisors often allow to go unrecognized and, therefore, unaddressed.

Risks like a disgruntled family member who can bring a lawsuit. Or a spendthrift family member, addiction problems, or even a healthcare situation that negates any positive return any investment product or strategy can yield.

Other more recognized risks like sudden changes in credit quality, sudden revelations of fraudulent accounting, and other factors that we've dealt with over the past couple of decades.

What's needed is a more comprehensive, integrated wealth management approach that considers and monitors all of these factors into risk management and due diligence, not just some of them. This is where the due diligence that Ron's firm does needs to be combined with as much due diligence on the relationship factors, as well!

Performance is a must. It is important. But it's foolish to focus singly on performance when there are so many other factors--many over which we have, at least, a modicum of influence--that threaten the very performance we focus on so intently.

And what about performance in light of the client's needs? How many clients were painfully squeezed for daily liquidity needs after 2008 because they were over exposed to illiquid investments focused on delivering performance?

This is where a well-functioning advisory team comes into play. In this scenario, you can have different advisors focusing on different aspects of client needs, then coordination of the entire team's work to give the client a robust and very effective level of service. This is akin to the family office level of service, although, this aspect only scratches the surface.

The compensation factor is significant. In my view, the best compensation is a combination of AUM and getting paid for advice. But again, this is only a part of what should be a much broader picture.

I know Charlotte well. She's made a wonderful contribution to the industry. And I applaud your question about the status quo! Kudos!

I agree with Ron. I always hear advisors and Lisa talk about 'wealth management,' but without anyone will to quantify how to measure it, I am not sure it is little more than an excuse not to measure or to improve performance.

Effective wealth management goes hand in hand with portfolio performance, if we are benchmarking the correct items - goals.

Just because traditional means separate investors goals from portfolio construction and management does not mean it is valid or everyone should do such. In fact, RIA firm can really separate themselves by integrating both in a true performance assessment.

BEB

Brent I am so glad you brought up that term 'wealth management. That's one that has indeed become an industry buzz word and so it's meaning has become fudged. Wealth management encompasses multiple types of planning and advisory services into an integrated whole. At, least, in the optimal sense.

It recognizes that what happens in one part of the portfolio affects every other part of the portfolio. So from a measurement perspective, the entire portfolio is optimized rather than each individual segment in silo fashion. This way, all components (hopefully) work in tandem toward achieving the client's goals instead of just a single investment objective.

It's not an excuse to not measure performance. It's looking at the various investment components from a broader view.

My own view includes the family's intellectual, social, and human assets in that wealth management scenario. A recent study by Optima Group showed that more advisors are realizing that they have to address this side of the family's wealth as well as the material and financial assets--and their performance!

But getting back to portfolio performance...the role of portfolio performance is greatly clarified within the context of the integrated wealth management approach. And it does anything but separate an investor's goals from portfolio construction. It does exactly the opposite, making portfolio performance that much more important in its appropriate role of helping the client achieve his or her goals.

This is a great conversation. I believe the advisors on here are saying "the traditional manner of measuring performance to an index or the market does not equate to success," which I agree. The question becomes (and will also answer the whole debate on 60/40 portfolios and the 4$ SWR) is how do we measure performance of an integrated wealth management approach?

It can be done and is my whole reason for launching Folioscore this summer (not an advisor product, so no marketing here). Wealth management should integrate goals with portfolio construction and therefore it can be measured and quantified.

I should submit a more detailed outline to you and Andy to help advisors.

Brent,

What would be fantastic is way to integrate wealth management goal assessment into a CRM. So that tasks, conversations, emails, etc. could be tagged and attached to wealth management goals and easily reported on periodically.

Looking forward to seeing your product.