Jeff Benjamin

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Advisers making statement by shunning formal investment statements

Ignoring a useful tool for keeping investors on course; wealthier clients do get written plan

Mar 21, 2013 @ 10:17 am

By Jeff Benjamin

If you're the kind of financial adviser who doesn't take the time and effort to create specific investment policy statements for your clients you are, believe it or not, in the majority.

Shocking as it might seem to most anyone even marginally connected to the broader notion of financial advice, the majority of advisers are not committing their clients to formal investment plans.

“A lot of advisers are talking about the importance of advice and practice management, but not a lot of them are backing it up and doing it,” said Rod Greenshields, consulting director at Russell Investments, which uncovered this odd finding in its latest quarterly adviser survey.

While advisers tend to be more diligent about creating investment policy statements for their wealthier clients, 61% of those surveyed are not doing it for all clients and many are not doing it for any of their clients.

“It is much like the way everyone knows how they should be dieting, but we still don't always eat well,” Mr. Greenshields said.

Yes, it is like that and it is also like not making the basic effort to ensure that clients have a plan and are most likely to stick to it.

“With the industry shift toward advisory-based relationships, it is surprising that so many advisers remain uncommitted to the best practice of utilizing investment policy statements with all clients,” Mr. Greenshields said. “One of the best ways an adviser can fulfill their fiduciary duty and encourage a client to stick to a long-term, disciplined plan is to develop a statement of their objectives and related recommendations.”

The survey of nearly 500 advisers, conducted in February, found that 60% of respondents had clients who requested to deviate from their investment strategy last year.

The survey findings don't make direct connections between 61% of advisers not creating formal investment policy statements and 60% of advisers saying their clients won't stick to a plan. But, hey, that seems like more than a simple coincidence.

“These investment statements can serve as a type of commitment device, reminding investors of their goals and helping them make productive decisions in times of uncertainty,” Mr. Greenshields said. “These are not just conversations, but they allow an adviser to refer clients back to something they agreed upon.”

What is even more perplexing about this whole thing is that the survey also found that 72% of advisers described themselves as optimistic about the markets and the economy. But only 21% of those same advisers described their clients as optimistic.

With that in mind, it seems something like a formal investment policy statement could go along way toward keeping those nervous clients from straying off course.


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