Your Performance May Vary
Posted on April 27, 2011
Filed Under Investor Mistakes, Mutual Funds, Personal InvestingThe April 18, 2011 issue of Barron’s has a story about America’s Top 100 Financial Advisors. How are those elite few chosen? The article tells us, “Our ranking is based on each advisor’s assets under management, revenue generated for his or her firm, and the quality of the practice.”
Wait. Did I read that right? The selection of the “best” advisors is based, in part, on “revenue generated for his or her firm”? Does that strike you as a bit off target? It does to me. If you are looking for a great advisor, why would you care how much of YOUR money is going into the pockets of your advisor and his higher-ups? Why would Barron’s give a gold star to an advisor who is skilled at what appears to be a potential conflict of interest?
Surely, you might think, investment performance plays some role in the selection process. Actually, no. The very next sentence begins, “We don’t explicitly consider investment performance…”
Amazing.
For nearly three decades I’ve been fighting the fight that investment performance ought to be a prime factor in choosing an advisor. But it’s a losing battle. Most folks seem more concerned with the accoutrements of finance (a nice office, slick brochures, breakfast meetings, etc.) than the bottom line reason to have an advisor in the first place – to boost your bottom line.
Another of the three listed criteria, “each advisor’s assets under management,” can also be viewed as a measure of successful salesmanship. I know for a fact that one of the top five advisors is a marketing machine, with a slew of TV and radio shows, books and live appearances around the country. Does his skill in marketing himself translate into success for his clients? Let’s just say that’s an open question.
In my opinion, the Barron’s article does little to help anyone make a smart choice.
At financial-industry conferences I attend, we are constantly told that investment performance is not important to prospective clients, because, apparently, surveys show they don’t care about performance. We are told that “trust” is far more important. Well, no one can argue the vital importance of trust between a client and his or her advisor, but ten or twenty years into retirement, “trust” won’t pay the bills.
As the old sign on the shop wall says, “In God We Trust. All Others Pay Cash.”
Regardless, it does seem that now and forever only a minority of investors will choose to sign on with an advisor who can clearly demonstrate an outstanding long term performance record.
And that’s a pity.
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