Be A Wealth Steward, Not A Wealth Manager

Published by Marshall Smith, CIPM, Managing Director - General Manager, Products
March 13th, 2015

Most advisors have turned client reporting into “advisor reporting,” instead communicating in terms of their owngoals performance as an investment manager, how they compared to their peers, how much risk the portfolio took in terms of standard deviation or in other investment terminology.

Advisors have the opportunity to differentiate themselves from the herd, who love to talk about themselves, by talking in terms their clients understand.  Here are three ways you can get started moving from being an investment manager to a good wealth steward:

  1. Measure Results against the Goal: GASP! The secret is out: Clients care more about how you helped them achieve their financial goals than if you beat the S&P500 – A revolutionary idea that should not be. You can show clients their wealth in terms of its progress towards a goal you have mutually agreed to pursue.  Five million dollars for retirement, fifty thousand a year for junior’s education, or putting a hundred and fifty thousand a year in a retirement fund to maintain their current living expenses are all examples of WHY clients invest.  Give them a report showing progress towards these goals and you will build trust.
  1. Money-Weighted Returns – The investment industry has fixated on time-weighted returns. Time-weighted returns are great if you are trying to communicate the performance of the investment manager and NOT the client.  Time-weighing isolates the impact of external contributions/distributions, which the manager often does not control.  However, if a client wants to see the real return on THEIR wealth, a money weighted measure is best.  When reporting returns to prospective clients or in marketing composites, time-weighted returns make perfect sense.
  1. Report Net of Taxes: When serving private clients, the way you manage client investments impacts them every April 15th. Wealth managers should position their strategies in light of their client’s tax situation.  This may mean adopting tax sensitive strategies when managing client investments that could yield lower pre-tax returns but higher after-tax returns.  This is especially true when taking over an existing client portfolio of assets.  What is the impact of liquidating the whole portfolio versus modifying it over time?  Likewise, when reporting to clients, show them the impact of taxes on their returns.  Talk through the ways in which you considered taxes when investing and how taxes can impact alternative strategies.  By discussing the impact of taxes, you position yourself as good steward of their wealth.
About the Author: Marshall Smith CIPM, Managing Director of Service Bureau, has been with First Rate since 2006. In this role he oversees Service Bureau, the business line responsible for clients that outsource their performance processing function, develops and maintains client relationships, and develops strategic planning for all Service Bureau operations. In addition, he leads First Rate’s Marketing team. You can follow Marshall on Twitter @1stRateMarshall, or connect via LinkedIn.

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