Is Measuring Advisor Results Really that Important?
High-performing financial advisors who exceed market benchmarks and investment alternatives are highly attractive to new investors. They are adept at using industry insights and assessment tools to evaluate risk and chart a course to reach investors’ most important objectives. They are savvy relationship builders who excel at examining and understanding investors’ personal, family, and financial goals.
However, history shows that financial advisors can show excellent results compared to market benchmarks and investment alternatives while struggling to implement strategies that enable investors to meet their goals. One of the greatest challenges among wealth management professionals is to rectify the disconnect that lies between an advisor’s performance and the results they achieve in relation to investors’ goals.
How Advisors Showcase Value
Investors must be able to measure an advisor’s performance to ensure they are making the right investment decision. They have plenty of options for managing their wealth ranging from a plethora of advisors who provide similar services to self or automated portfolio management. All these choices mean that to justify fees for their services, advisors must prove their value to investors.
Today’s financial advisors excel at demonstrating their expertise in selecting investments relative to other options. They provide clients with thorough reports that detail investments, risk, and performance results. They share specific information that shows how they are performing compared to market benchmarks and other investments. They keep investors abreast on what parts of the portfolio are generating a return.
When advisors openly share their expertise and performance results, they provide transparency that allows investors to feel confident in their portfolio management capabilities. Transparency is crucial, especially in the age of automated portfolio management. When advisors can show that their clients’ assets are performing on par with or better than market benchmarks, they disprove the robo-advisor marketing message which says that investors do not need to hire the services of a traditional wealth manager.
While measuring performance and showing results that meet or outperform benchmarks is important, these are not the only factors investors take into account when determining whether or not to entrust a financial advisor with their investment portfolio. Relationships also matter in wealth management.
Successful advisors do a remarkable job showcasing their competency as partners to investors. They commit time and energy to learning and understanding their clients’ goals on a meaningful level to cultivate connections and grow relationships. They develop smart strategies that align with investors’ aspirations, and they plot pathways to their clients’ desired objectives.
These actions only tell part of the investment story, however. They describe why investors should feel confident in the advisors they have selected, but they do not show how advisors are actually delivering on their commitment to help their clients reach their personalized goals.
Painting a Balanced Wealth Management Picture
At the end of the day, investors care most about whether or not they are achieving their wealth management goals. Performance is a great indicator of advisor expertise, but it does not measure an advisor’s capacity to address investors’ specific aims. In addition to showcasing performance results, advisors must demonstrate how they plan to follow through with an investment strategy that ultimately satisfies their investors’ personalized goals.
For example, if an advisor has worked with an investor for five years, the advisor should be able to review the portfolio’s performance across the industry’s ups and downs over that same time period and discuss the decisions made along the way to optimize the investment. Advisors should have no trouble telling a detailed investment story that answers to why the investor selected them to manage their portfolio in the first place. Most importantly, advisors need to articulate how they plan to advance investments from where they currently stand toward investors’ goals. They need to show their clients what the trajectory of their portfolio will look like moving forward.
A balanced investment story that blends performance results with goals-based reporting gives investors both the transparency and the advisor accountability they deserve when entrusting a wealth manager with their investments. When advisors deliver both of these messages in unison, one gives context to the other, and together they provide investors with a holistic investment picture. Successful advisors communicate to their customers in both terms, creating high-value investor relationships that support retention and lead to growth.
CORE: Technology for Holistic Investment Management
To seamlessly facilitate transparency and investment clarity, savvy firms are relying on technology. Integrated systems enable advisors to capture information that relates to goals, performance, and reporting to deliver investors an all-inclusive investment picture. When information flows freely between systems with ease, advisors can easily access all they need to tell complete investment stories.
First Rate CORE’s platform offers unsurpassed goal reporting that shows investment milestones along the journey toward the investor’s financial goals. It also offers easy access to advisor performance data through its powerful performance calculation engine. This holistic, web-based console puts the investment measurement and client reporting requirements that drive today’s financial services marketplace right at advisors’ fingertips.
CORE is a solution that empowers advisors to tell two stories simultaneously. It lets them show how they have performed relative to their peers and alternative options while offering a clear view of how the investors are moving toward their goals. Together, these stories enable investors to feel confident that they hired a capable advisor with demonstrated expertise while gaining insights into their progress toward achieving their own financial goals.
Patrick Flaherty, CIPM, is the Product Owner for CORE Performance and Integrations as well as the GM of Fee Manager. In addition to shaping the strategic direction and development of both products, Patrick is responsible for overseeing the operations of the Fee Manager business unit including developing and maintaining client and partner relationships. In 2011, he completed the requisite study and exams for the certificate in investment performance measurement (CIPM).