Investment Advisors: Show your numbers

Zweig: Advisors need to show their numbers

I have a pretty strong opinion on this article.  At face value and in spirit, I totally agree that advisors should show their portfolio performance.

The letter of the law really prevents us from doing that.  It is an incredibly diffcult challenge to take in account all the different factors - fund flows, taxes, dividends, fees, etc.  Regulators are very strict in this arena - as they should be and therefore, many choose to not showcase performance.

Here is how I do it for individual clients that are with me.  I show the client's return NET OF FEES and I include how the Russell 3000, Aggregate Bond Index, Global Market Index, and International Market Index.

Then, on a weighted average the client can determine how he did vs. the benchmark.

Example:  If a client trailed their benchmark by .10%, but they know their total fees were 0.30%, then they can see they outperformed the benchmark by 0.20%.  Conversely, if they trailed the benchmark by 0.50% net of fees, they know their investments trailed the benchmark before fees by 0.20%.  Of course, this is pre-tax.

0.20% over a quarter is simply ambient noise.  However, if an advisor shows their results GROSS OF FEES, he is inflating his numbers because that isn't what the client actually experienced.

The other thing you have to consider is (1) The intangibles that an advisor offers, (2) the tax impact.