Investment advisors must give their clients quarterly performance reports, right? Just because we think everyone else does it, does that mean we need to also? Believe it or not, some advisors only provide clients with performance reports annually and some don’t provide them at all!

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As CEO of Total Rebalance Expert®, I come in contact with many advisors. I was surprised to find out that some of them did not submit performance reports to clients. When I asked them about it, they gave me the following responses:

• Clients get monthly and annual reports from their custodians.
• They don’t want clients focusing on short-term performance.
• They want their clients to value them for their advice and partnership.

Think about it. We don’t want our clients to focus on short-term returns. In fact, we’d rather they not focus on returns at all. We’d like our clients to be thinking about accomplishing their long-term goals. If we are truly wealth managers, then why does our reporting emphasize performance?

In my RIA firm, I’ve always given my clients quarterly performance reports. I don’t think I could stop doing so mid-stream. But, what if the move was gradual?

For example, what if, in addition to performance figures, I also added the following to my reports?

• List and description of services provided (such as financial plan updates, Roth conversion analysis, insurance review)
• Progress toward goals (such as percentage accumulated toward vacation home purchase or retirement goal)

I could then gradually move performance reporting to the back page, eventually deleting such reporting altogether.

Is this a radical idea? Or is it more in line with the services we want to be known for?

Comments (5)

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Interesting thought Sheryl. The quarterly tradition exists because DB investment committees meet quarterly, and the practice is to have different investment managers attend because it would be hard to see dozens in just one meeting.

But DC and HNW are a different story, & I'd suspect that some would just as soon see their advisor less frequently.

In either case, quality trumps quantity. The fiduciary duty to monitor & review investment performance can & should use 21st century insights despite the age-old, flawed,practice of peer groups & indexes. There are better ways.

ronsurz , May 01, 2012

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If portfolio management is being provided, eliminating performance reporting seems like it could be inappropriate.

I think Sheryl has an excellent point about keeping performance in perspective if financial planning is also being provided.

bramsay , May 01, 2012

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I agree with bransay (and Ron) that financial planning goals need to be the center of performance evaluation; however, then would you not need to change your entire rebalancing application?

Consider, a client needs to grow their portfolio at 8% annualized over a 10 year period to achieve their goal, according to their financial plan. If after year one, the portfolio falls 30%, why would you rebalance them back to the 8% investment policy?

Does portfolio management also need to be changed from market oriented to goal oriented? Along with the software?

brentb843 , May 02, 2012

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This is an interesting question. Again, I think the long-term outlook needs to always be at the forefront. When I think about reporting on progress toward goals, I envision something that says percentage toward goal, or better, dollars to goal or time to goal. I don't have this concept fleshed out. Maybe I'll do another article with tangible ideas at some point.
As to your specific example, I don't advocate changing allocations based on market performance. Certainly a downturn in the market would impact accomplishment of goals. Illustrating the extended time required would give the client a more realistic expectation.

SherylCPA , May 04, 2012

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Performance reports of some kind must be sent. If they're based on how close a client is to achieving goals, it's better. Obviously. But you can't go from quarterly to none. In fact, focusing on the frequency of the reports is bad thinking.

The focus must be placed on the quality of the information communicated, not frequency.

Reporting quarterly on how close you are to achieving your goals improves the quality of the information advisors communicate, and that's a good thing.

But now consider other ways to improve the quality of the information provided clients: How about providing perspective and context for clients to understand the intense math in the reports? How about using the client's preferred medium for communication -- from mobile to tablet to desktop to paper?

Providing less information is not the answer. Transparency, the most important rubric of successful client communications in today's environment, demands accountability.

Presenting information that engages clients is what's needed. Putting portfolio performance in perspective is the goal--telling the client his personal financial story on a personal and ongoing basis. That's the goal.

by the way, that's video for some, charts and tables for others, and old fashioned personal meetings for still others. Advisors who do not educate and engage clients this way are in jeopardy in the coming shakeout.

Personally, by the way, if my investment advisor were to stop giving me portfolio updates, I would would walk away.

agluck , May 05, 2012

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