Lack of Performance Reporting (Part 8)

Today 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…

“You get what you pay for.”

     > Michael Kitces, an adviser in Washington and industry blogger…
     > [says] the steep price tag… is keeping some advisers away…

This is a barrier to entry.

     > 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.