I recently read a report which indicated that clients of financial planners do not value investment performance, but they expect good performance as a given.

This made me think, if good investment performance is seen as a given and is not valued then how do clients judge the performance?

I keep it as no secret that I believe that financial planners should manage the investment side of a clients assets because only then can they really help and steer them along the path towards their goals. And this is important when looking at this blog.

I know very little about cars other than I want to get in my car and press the start button and then it will go…..if all cars were the same cost what would make me buy a Ford or a BMW. If we take it further and say the spec was the same what would make me choose.

For me it would be fuel efficiency, with our last car we got around 30 miles to the gallon around town, with the new car we get around 40 miles. So I can see the benefit.

If we only used the car on the motorway I believe we would get around 60 miles to the gallon, so if we switched from motorway to town and that dropped to 40 surely we would be disappointed.

If you are still with me then this is what investing is like. All financial planners are essentially the same, there are little things around the edge which make them stand apart from others and perhaps the charging is different but essentially for what clients value they are all the same.

So if the investment performance is a given then communicating this and knowing what is happening is an essential ingredient because it is this that gives the client peace of mind.

In our adventurous portfolio in 2010 it was up around 20%, 2011 it was down around 11%, in 2012 it was up around 14% and this year all things being equal it should do around the same. The figures look good but do we think this will continue. The long and short answer is no, we believe the markets are moving to fair value and if we can achieve somewhere between 5 to 7% p.a. after charges over the next 5 to 10 years we believe our clients will be happy.

The next question is, is this good, we build a benchmark and and aim to beat that benchmark over a 5 to 10 year period. In reality the benchmark is very hard to beat but it gives our clients a target that we are looking to achieve. And yes over most periods we do beat the benchmark, but not always.

So my point is this, if clients view performance as a given then we must know what outcome we are looking to achieve, we must also know what to say when the market is looking good (because that is when everyone wants to invest) and when it is bad. If we don’t control this then it is very hard to communicate effectively on what is a given.


NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.