Most advisers and their clients don’t see eye to eye on measuring portfolio performance, according to global asset manager Russell Investments’ latest quarterly survey of U.S. financial advisers.
The majority of advisers (53%) say that they measure performance based on the portfolio’s progress toward meeting the client’s investing goals. However, they felt that only 29% of their clients held the same view. Rather, clients were more likely to gauge performance by short-term factors, such as one-year returns (54%), the portfolio’s absolute return (49%) and portfolio volatility (41%), the survey finds.
“With the market volatility seen in 2011, it’s not surprising that individual investors are fixated on one-year returns and portfolio volatility. But there is little actionable advice in these short-term, backward-looking measures for the individual investor,” says Frank Pape, director of Consulting Services for Russell’s U.S. adviser-sold business, in a statement. He urged advisers to help clients define desired outcomes and performance expectations from the outset.
Advisers and clients also had different opinions about the outlook for the markets. More than three in four advisers (78%) were highly optimistic about the capital markets over the next three years. But only 18% of advisers believed that clients were optimistic about the markets.
Despite the overall lack of market optimism among clients, advisers say that their clients’ return expectations for 2012 are on par and even slightly higher than their own. Advisers say that on average they expect a 3.9% return for a conservative portfolio, 5.9% for a balanced portfolio and 8.3% for an aggressive portfolio. Their clients’ return expectations, they said, were 4.3% for a conservative portfolio, 6.5% for a balanced portfolio and 9.3% for an aggressive portfolio.
Another interesting point was that 41% of advisers identified portfolio rebalancing as the main topic of conversation initiated with clients, but only 11% say clients raised the topics themselves. Advisers say that clients most often initiated conversations around market volatility (56%), concerns with government policy (49%), global events (39%) and portfolio performance (39%).
The survey includes responses from nearly 600 financial advisers working in 141 national, regional and independent advisory firms nationwide. It was conducted in mid-January.
- Margarida Correia is the associate editor of
