Lack of Performance Reporting (Part 8)
Posted by Mark on April 24, 2018 at 07:00 | Last modified: December 5, 2017 10:42Today I want to discuss a Money magazine article published by Robyn Post on September 23, 2014 entitled “Why Won’t Advisers Disclose Their Investment Performance.”
> Clients of Jim Winkelmann, an adviser in St. Louis… can request
> a free performance report… But a warning in bold, red letters…
> [says] little to nothing can be learned from past performance.
> “Do not base decisions on this information.”
Even if investing is more luck than skill, I would rather take my chances with someone who outperformed in the past given that we do not know what is in store for the future.
I [completely agree and] am more familiar with the “past performance is no guarantee of future results” disclaimer.
> Winkelmann… is among a minority of advisers who share their
> investment track records. Yet some financial services professionals
Emphasis is mine. Robyn Post now joins Kenneth Winans, Jason Zweig, Tim Medley, David Spaulding, Mark Perry [and readers], and Eric Tyson in opining about a lack of performance reporting in the financial industry.
> believe the practice should be more common because it can help
> prospective clients determine if an adviser will do a good job.
>
> Some advisers… are skittish because of a maze of rules… from
> the… [SEC] and state regulators that make advertising tricky…
Jonathan Pond is an adviser who said he wouldn’t report performance for this reason (see Part 5).
> [FINRA], Wall Street’s industry-funded watchdog, also warns…
> against advisers boasting “above-average account performance.”
>
> Regulators typically prefer, but do not require, that advisers
> who advertise returns follow… [GIPS], the king of performance
> guidelines, say securities industry experts…
The “king” was discussed here.
> The group that developed the GIPS standards also recommends that
> advisers hire a reputable, independent firm to verify those figures…
> Michael Kitces, an adviser in Washington and industry blogger…
> [says] the steep price tag… is keeping some advisers away…
> Instead some advisers use their own calculations. But those can
> mislead investors or land advisers in hot water with regulators.
> Some advisers… showcase only the years of their best results.
This echoes Eric Tyson’s article (Part 7).
> Many advisers… do not believe the [performance] figures are
> an accurate reflection of their client portfolios. That is
> especially true of advisers who… must often work with some
> assets clients already have… [such as] retirement plans that
> offer poor fund choices or mediocre employer stock the client
> wants to keep… Those investments can skew returns…
> [rendering them meaningless] to potential [future] clients…
This is an interesting point with which I will eventually disagree.
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