Mar 14, 201209:42 AMBlog

Survey indicates wide disparity about portfolio performance

Mar 14, 2012 - 09:42 AM
Most financial advisers and their clients appear to hold different opinions on how a portfolio's performance should be measured, according Russell Investments' latest Financial Professional Outlook.
The majority of advisors (53 percent) indicated that they measure performance in terms of the portfolio's progress toward meeting the client's investing goals. But only 29 percent say clients also measure performance this way. Instead, advisers said that clients typically gauge portfolio performance by short-term factors such as one-year returns (54 percent), the portfolio's absolute return (49 percent) and portfolio volatility (41 percent).

"With the market volatility seen in 2011, it's not surprising that individual investors are fixated on one-year returns and portfolio volatility. But there is little actionable value in these short-term, backward-looking measures for the individual investor," said Frank Pape, director of consulting services for Russell's U.S. adviser-sold business. "Advisers play a critical role in helping their clients define desired outcomes and performance expectations from the outset. With a common understanding of the end goals in hand, advisers can develop plans that take a total portfolio perspective toward achieving the outcome − not just beating a benchmark or achieving a specific return."

The latest FPO survey also reflects a continued gap between advisers and clients around market sentiment. Advisers maintained a strong sense of optimism about the capital markets over the next three years (78 percent), yet reported a sustained lack of optimism amongst clients.

Only 18 percent of advisers believed that clients were optimistic about the markets. While this is higher than the 9 percent recorded in the December iteration of the FPO survey, the overall level of perceived optimism among clients remains below the levels seen in early 2011.


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