(What your Financial Adviser doesn’t know they aren’t telling you).
Words: Gordon Bennie
So, you’d probably like to retire one day – wouldn’t you? If we told you that poor investment performance could mean the difference between retiring with an income of £30k per annum, versus £50k per annum with good performance, you’d want the higher amount, right? This outcome doesn’t have to be left to chance. You just need to know if your investments are performing well, and adjust if they aren’t – which should be simple, shouldn’t it?
Unfortunately, many people rely on financial advisers who themselves struggle to understand portfolio returns and risks. This can lead to misinterpretations that might give you a false sense of security. While most financial advisers excel in financial planning, if they lack knowledge about performance reporting, they won’t be able to build and manage your portfolio effectively.
Checklist for Accurate Investment Reporting
To ensure you’re getting accurate reporting and the performance you need for the life you’re planning, follow these steps.
Ask about benchmarks
Using the correct benchmark is essential for evaluating whether your investment strategy is adding value. The wrong benchmark can flatter poor performance. Are industry-recognised benchmarks like STEP MPI or ARC PCI being used to assess your portfolio? These peer group benchmarks compare your portfolio to thousands of others with similar risk profiles, providing a clearer picture.
Check the depth of reporting
Does the report cover the strategy’s entire performance history, including all changes and market reactions over time? Comprehensive reporting should record performance with every adjustment made due to market conditions, giving you a true view of how your portfolio is performing.
Beware of hindsight clarity
Or does it just show a basket of funds selected today for their strong historic performance? If your adviser is showing strategy returns based on funds that weren’t actually held in the past, be very cautious. Some advisers present charts showing impressive returns, but these are often based on selected funds chosen for their historic performance rather than actual historical holdings. Always ensure you’re looking at a realistic performance report.
Understand the ratios
Metrics such as the Sharpe and Sortino ratios can indicate whether your returns are a result of smart investment decisions or excessive risk-taking. Make sure you understand these key figures and how they apply to your portfolio’s performance.
Ask the right questions
How many analysts does your adviser employ? Do they use discretionary managers to manage your portfolio, or do they build portfolios themselves? It’s important to understand their expertise and approach to investment.
Look for consistent outperformance
Ensure your adviser selects managers who have consistently outperformed their peers over time. Remember long-term success is totally driven by returns.
Avoid cash benchmarks
Be wary of reports using cash benchmarks. These can inflate performance comparisons, especially when interest rates were so low, making it easier to show outperformance.
Ensure real data
Make sure the performance data you’re shown corresponds to the actual period your investments were held. Misaligned data can give false results and a misleading sense of how your investments are doing.
Or…
Just call Concentric.
At Concentric, we pride ourselves on providing transparent, comprehensive reporting that reflects the actual performance of strategies and portfolios. We don’t rely on misleading practices or selective data. Instead, we compare with gold-standard benchmarks and work with top-tier discretionary managers, focused solely on managing portfolios.
Our rigorous analysis allows us to identify the best-performing managers, so we can ensure consistent outperformance for our client’s investments. When a manager no longer delivers, we act swiftly to replace them with one who will exceed your expectations.
If you want accurate, transparent investment reporting and advice to help secure your financial future, contact Concentric today on 01534 888801 or email gbennie@concentric.je to arrange a free assessment.