Jeff Benjamin

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Jeff Benjamin breaks down the game for advisers and clients.

Beating the benchmark is so 2012

These days, absolute performance is an investor's North Star

Feb 27, 2013 @ 2:05 pm

By Jeff Benjamin

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Getting a good fix on client goals is the best course

The S&P 500 Index is a wonderful benchmark of broad stock market activity, but does that mean we have to measure our investment performance against that, or any, universal benchmark?

This is the kind of attitude shift that Brinker Capital Inc. has been pushing to the financial advice community with a certain degree of measured success. According to the results of Brinker's January survey of financial advisers, 79% say they are now using their clients' personal goals as measures of investment success.

“This is a major shift in thinking,” said Brinker president John Coyne.

Brinker, which manages more than $13 billion on managed account platforms, has even hired a behavioral finance specialist to help educate financial advisers.

“One of the things we found is that people don't think about wealth in absolute terms, they think of wealth in relative terms,” said Daniel Crosby, an independent behavioral finance consultant, who is also working with Brinker executive chairman Charles Widger to write a book on the subject.

“It's a simple but powerful concept,” Mr. Crosby said. “If you don't have an investment North Star, you're at risk of shifting priorities and drifting away from your investment plan.”

The process begins by teaching advisers how to help clients identify specific intermediate and longer-term goals, which might include things like saving for college, buying a home, or paying for an expensive trip.

From there an investment strategy is developed and put to work just like many other investment strategies. But the ultimate goal is to accomplish the investment objective, and not to focus on the daily performance of an arbitrary benchmark.

“If you turn on the television, every 15 minutes somebody is banging you over the head with where the markets are right now, and financial advisers are trying to fight that mentality,” Mr. Coyne said. “Advisers are trying to get people to think more and react less.”

For advisers, getting clients to focus on tangible objectives instead of beating benchmarks can breed a sense of accomplishment among investors, as long as the plan is executed and the goals are met.

The daily, monthly, annual, or even multi-year performance of the S&P doesn't matter if your goal was to reach a certain asset figure by retirement and you reached that goal.

Even if you don't meet your goal the performance of a benchmark becomes blissfully irrelevant.

“This has everything to do with the individual investor, and nothing to do with keeping up with the Joneses,” said Mr. Crosby.

By not setting yourself up to be measured against a benchmark there is no reason to worry about a portfolio's relative performance. These days, there's just performance.


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