Client Affairs
Investors Need Education On Goals-Based Approach - New Study
There is a significant gap between how investors and advisors believe that portfolio performance should be measured, according to a new study by Russell Investments.
The Financial Professional Outlook survey found that the majority of advisors (53 per cent) measure performance in terms of the portfolio's progress towards meeting the client's investment goals, while only 29 per cent of advisors said that investors themselves looked at performance this way.
According to the advisors surveyed, clients tend to assess portfolio performance by short-term factors such as one-year returns (54 per cent), its absolute return (49 per cent) and volatility (41 per cent).
In the context of the market gyrations of recent years this focus on one-year returns and portfolio volatility is understandable, but, as Russell points out, there is little "actionable" value in these short-term, backward-looking measures for the individual investor.
Instead, Russell believes that advisors should focus on encouraging clients to take a whole portfolio approach to achieving financial goals rather than focusing too much on just beating a benchmark or achieving a specific return.
Turning to current market sentiment, here again Russell identified a significant gap between the attitudes of advisors and their clients. While most advisors (78 per cent) maintained a strong sense of optimism about the markets on a three-year view, just 18 per cent said their clients were similarly upbeat. Although this was an appreciable rise from December’s corresponding figure of 9 per cent, investor sentiment remains stubbornly below the levels seen in early 2011.
Despite the fact that optimism is in short supply among investors, the advisors surveyed surprisingly reported that their clients’ return expectations for this year are on par with or even slightly higher than their own.
Advisors said that on average they expect a 3.9 per cent return for a conservative portfolio, 5.9 per cent for a balanced portfolio and 8.3 per cent for an aggressive portfolio. For clients the corresponding figures were 4.3, 6.5 and 9.3 per cent.
