I have been following David Loeper‘s work for years. In fact, my practice changed immediately after I saw him speak.
As a person who works with other peoples’ assets, we know something is wrong with looking at individual investment statements like you get every month from your investment company. Today your investments are worth “x” and tomorrow they are worth something else. Some advisors like to show trend lines or spreadsheets showing how something moves from time to time. They may place your investment against another investment or indices.
So, is this helpful to the client?
I don’t think so. In fact, I am not aware of any advertising that does not warn that past performance has nothing to do with what happens in the future (say it real fast like the television commercials).
Loeper calls this challenge measuring temperature with a ruler. Let’s see what he thinks about just reviewing your statements and returns.
The investment industry standard of relying on time-weighted, compound return percentages as the principal tool for evaluating client portfolios and adviser performance has been a bad idea ever since it was adopted at the birth of the modern wealth management industry.
Loeper offers a solution.
Wealth managers should take some cues from the way pension plans are managed. Pension managers keep an eagle eye on where they stand to make sure their assets match their liabilities. Just as an adviser should warn clients to adjust their liabilities when the portfolio appears to be falling short of meeting them, it is equally important when over funded to advise clients to remove some of the investment risk when they can afford to do so. That’s what pension managers do. Why not personal wealth managers?
See? I told you this makes sense.