Lack of Performance Reporting (Part 1)

I am learning some things as I investigate the wealth management industry in an attempt to find my niche. One of the big eye openers is a lackluster effort given to performance reporting.

Before learning about sub-advisers and TPAMs, I had a vague understanding of the adviser role in wealth management. I thought both financial and investment advisers managed investments. I knew mutual funds and ETFs were often used. I thought advisers often sold their own companies’ funds. I had a vague understanding that some funds published misleading performance data. I knew some advisers did not publish performance data and I believed these were the “separately managed accounts,” which [perhaps erroneously] made sense to me.

I had never directly researched “performance reporting in the wealth management industry” and am now surprised to discover that this may be an inconsistent phenomenon.

To explain how this occurs, I envision a process like the following. People with savings hire advisers to invest for them. These advisers coordinate multiple financial planning activities such as retirement, taxes, estate/legacy, life insurance, and annuities. Most time is spent on these other activities and the lack of investment performance reporting—essential for suitability evaluation—goes completely unnoticed. Alternatively, investing may be cursorily discussed because it gets outsourced to a TPAM. Either way, investing fails to get needed attention but clients remain satisfied overall due to other financial planning services of which clients may not have even been previously aware.

Kenneth Winans wrote a 2017 Forbes article entitled “Wall Street’s Secret: Advisors Sell Performance, Yet Hide Their Track Records” where he gets right to the crux of the matter:

     > …the American culture… love[s] taking the measure of things,
     > even when they’re hard to quantify. We like to know exactly how
     > good our doctors, accountants and lawyers are at what they do,
     > trying to rank them against their peers. Oddly, however, when
     > it comes to performance data from the average financial advisor,
     > finding hard numbers is like trying to nail jelly to a wall.

Like I said, First Ascent you are not alone…

     > Worse still, it’s nearly impossible to get client references from
     > IAs that reveal how they’ve performed. In an industry full of
     > type-A personalities, you’d think they’d want bragging rights.
     > Instead, Wall Street’s dirty little secret is that most investment
     > pros don’t have performance records. They prefer to talk about
     > how attentive an advisor is, whether he or she returns calls
     > quickly and can refer you to a good accountant or an estate
     > attorney. But we can get that type of information ourselves on
     > Google without having to pay 1% of all our savings annually.

I will discuss this further next time.