Ask an adviser how they evaluate investment performance and, in many cases, you will hear about relative performance measured against a benchmark or a peer comparison reference, such as the manager did well and ranked in the first quartile.
However, ask a client how they evaluate investment performance and you are more likely to find that the assessment focuses on whether they are on track to maintain their desired lifestyle, especially for those that have retired and are relying on their savings.
When an adviser has worked with a client to plan for their future – considering available capital, contributions and spending requirements – then generating a consistent return to meet those objectives is surely the most important element of the advice process. Some recent commentary from Tom Dorsey, of Dorsey Wright and Associates in the United States, suggested that the industry may have alternative motives:
“Comparison in the financial arena is the main reason clients have trouble patiently sitting on their hands, letting whatever process they are comfortable with work for them. They get waylaid by some comparison along the way and lose their focus. If you tell a client that they made 12% on their account, they are very pleased. If you subsequently inform them that ‘everyone else’ made 14%, you have made them upset. The whole financial services industry, as it is constructed now, is predicated on making people upset so they will move their money around in a frenzy. Money in motion creates fees and commissions.”
This is undoubtedly a confronting statement, even a controversial one. However, if it should serve as a catalyst to more closely align portfolio management with client objectives, then it will have served a worthy purpose.
The real opportunity that advisers have to meet and exceed their clients’ objectives stems from the trust built over many years in their client relationships. The ability to take a genuinely long term view, and to have confidence in the portfolio management process, leads to satisfied clients. That confidence is built gradually over time and is a result of a transparent approach and a very strong focus on communication. When done well, it means a true collaboration between the client, the adviser and the investment manager. It represents a ‘Do It With Me’ approach between the three parties.
A growing number of advisers in Australia have recognised that they are able to work with a partner to outsource core investment functions such as asset allocation, re-modelling, execution and portfolio commentary. Importantly, they remain closely involved in the management of their clients’ portfolios, particularly when guiding the manager to account for individual client requirements and preferences. What has also become apparent is that when the adviser has more capacity to focus on the future with their client, and when the client is more informed and involved, the likelihood of business growth by referral also increases.
Feel free to contact me to find out more about the benefits and implications of outsourcing or to talk to a principal who has been through this change recently.
Santi Burridge is the Managing Director of Implemented Portfolios, a leading provider of investment management outsourced solutions for businesses across Australia.
