Numbers aren't nearly as important as education

JAN 29, 2012
Most sophisticated portfolio management and reporting systems allow an adviser to tell a complete performance story to their clients. But how complete the story is relies more on the adviser than the software. Commonwealth Financial Network's Client 360 platform, for example, offers many reports to advisers, including time-weighted and dollar-weighted rates-of- return reports. The key to the value of such reports for advisers and investors lies in understanding them, said Darren Tedesco, managing principal of innovation and strategy at the firm. “Education is a key component of preventing a potential concern for clients,” he said. “You, as the adviser, have to make sure you know how to explain the differences in these different types of measurement.” Commonwealth does special adviser training in this area and also provides information for reports that can be generated by investors, Mr. Tedesco said. “We have a whole section for tracking performance based on goals because many advisers don't even want to talk about performance reporting,” he said. “Clients often are most concerned about whether they are tracking toward their end goals.”

GREATER CONFUSION?

Matt Abar, founder of FinFolio, a web-based portfolio management platform launched in 2010, expressed enthusiasm about the new online tools, which might shake things up in the portfolio measurement space. But he worries that the tools could lead to even more confusion among investors. “Customized, more often called blended, benchmarks are something that a lot of advisers don't do, because they are pretty complex,” Mr. Abar said. “What are advisers — or these sites, for that matter — going to do when a client comes and asks why they are generating something different from what the adviser is providing?” He said that while rate-of-return formulas in themselves are not very complicated, the difficult part is figuring out a client's cash flow and pairing it with benchmarks. — Davis D. Janowski

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