financial advisers and investment results

I got an interesting email yesterday morning from Factset (FDS), a publicly traded firm that provides information and analysis to the financial community.  It’s titled “What Ultra High Net Worth Clients Want From Wealth Managers.”

FDS defines “ultra high” as having $10 million or more in investable assets.  These clients are (as economic theory would predict) more risk averse than the less wealthy.  According to FDS, the primary service requirements from this group–an emphasis sharpened since the financial crisis–are to have investments that fit their risk profile and to receive timely and accurate analysis of performance from the financial adviser who is the primary point of contact with the wealth management firm.

This contrasts with the attitude of the less wealthy, who FDS says are more concerned with having a cordial relationship with the financial adviser than in having suitable investments, good performance and timely reporting.

Three things about this email strike me:

–that the people with the most money are interested in investment performance for the first time

–wealth managers are struggling to provide the data

–less wealthy, but still affluent, clients are relatively indifferent to how their portfolios are performing, provided they get a minimum of attention from the marketing guy assigned to them.


I think this is one of the two central problems with active investment management services provided to individual clients.  Even though performance analysis is the lifeblood of the portfolio management business, and for decades attribution software has been able to generate extremely detailed results daily, clients have generally been uninterested in finding out.

Wealth management firms haven’t been in a rush to educate them, either.  On the one hand, “like me, trust me” marketing is easier to manufacture than market-beating performance.  So one (not me) might argue it’s in the firm’s best interest not to shed light on performance with warts.  On the other, there’s a reasonable argument (here, I agree) that a firm shouldn’t create an attitude of chasing the latest “hot” thing among clients.

The second problem is deeper.  As I see it, traditional brokers have placed most of their effort on marketing, with considerably less focus on creating outperforming products for their clients.  As FDS underlines, until very recently almost no clients have made performance a crucial variable.  Why then, the argument must have gone, deliver something customers don’t consider key?  Send them fifty pages of raw data at the end of the quarter rather than one page of analysis.  Why pay top dollar for a strong manager when a lesser light will satisfy the minimum regulators require, and clients are indifferent?

Two issues, then:  inability to deliver timely, pertinent performance information; and, in the case of (a majority, I think, of) traditional firms, portfolio managers unable to deliver satisfactory results.

No wonder even active managers with respectable records are losing assets.








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