Personal Finance

Personal rates of return and benchmark comparisons are often lacking.
By Gail Bebee | 11/03/11

The old adage "What gets measured, gets managed," applies to many areas of life beyond the familiar workplace setting. It most certainly applies to the performance of your investments.

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

Unfortunately, measuring and reporting on how a client's investments are doing is a taboo subject for many financial advisors. And that's not just my opinion. Tom Bradley, president of Steadyhand Investment Funds, goes so far as to say that the wealth-management industry's "lack of effort in providing useful information (to assess investment performance) borders on negligence."

In a recent report, "How is My Portfolio Doing...And What Should I Do About It?" Bradley takes a stab at improving this sorry state of affairs by publishing "a usable, common-sense framework for investors to assess their investment performance."

Bradley's framework consists of four main steps:

  • Gather data and calculate the returns of your overall portfolio over the past one-, three-, five- and 10-year periods;

  • Calculate the returns of a customized benchmark portfolio, using benchmark asset-class returns weighted according to their proportion in your target portfolio;


  • Analyse how you are doing. Compare your portfolio's long-term returns to your benchmark portfolio and to your investment objectives. Look at asset mix, specific holdings, risk-reward ratio and cost;


  • Review your money manager(s) and current investments and make adjustments as needed. Sell investments with poor prospects and rebalance your portfolio back to your target asset mix.

To get a read on current norms in the financial-services industry, I reviewed the performance- assessment practices of a cross-section of firms, beginning with Bradley's own direct-sales fund company.

Steadyhand's quarterly account statements list each fund held, its percentage of the total portfolio, and the percentage of holdings by asset class. The fees paid to manage each fund and the overall costs are also shown clearly. Consolidated portfolio performance is listed for three months, one year and since inception.

Additional fund data, along with the returns of market benchmarks, are posted at Steadyhand's website. This is basic information that clients need to analyse how investments are doing and determine what changes may be necessary.

Unfortunately, publishing rates of return in standard account statements is not the norm for full-service brokers, according to an advisor who has worked at several brokerage firms. In her experience, advisors discuss performance reporting at portfolio-review meetings with clients rather than publishing enhanced statements.

Paul Adair, director of investments and advice at Richardson GMP, confirmed that his firm takes an in-person approach with its high-net-worth clientele. The brokerage's standard account statements do not include performance reporting. Instead, Richardson GMP advisors have access to a flexible set of tools for preparing performance reports tailored to specific client needs. These reports are used during portfolio reviews and other one-on-one meetings with clients.

At the full-service brokerage BMO Nesbit Burns, performance assessment varies according to the type of account. As part of an all-inclusive fee, clients with managed accounts (generally high-net-worth clients) receive comprehensive quarterly and annual performance reports. These updates show how clients' returns fared in comparison with relevant market benchmarks.

For traditional commission-based accounts at BMO Nesbitt Burns, portfolio-performance reporting is not part of the standard monthly statements. But it is available at the financial advisor's discretion. The advisor who I interviewed provides quarterly performance-related summaries to his largest clients, but clients with smaller accounts must request this information.

The advisor who I contacted at Burgeonvest Bick Securities Ltd., a non-bank-owned full-service brokerage, provides clients with performance reports only if they ask. Comparisons to benchmarks are generally not provided. Client portfolios are reviewed against the client's target asset allocation annually, and rebalanced when money is added or withdrawn from an account or when there are significant market moves.

Clients of the independent discount broker Qtrade Investor have access to monthly, quarterly, yearly and average annual compound rates of return for each account. They can compare their performance to various standard benchmark indices for the year to date, the last 12 months and since inception.

Qtrade has provided this data since it opened its doors in 2000. Current (intra-day) account asset-allocation data are available online. Overall, Qtrade's various reports give clients the information needed to do self-assessments of how their portfolios have performed.

The bank-owned discounter RBC Direct Investing has recently added some excellent online performance-reporting tools. Annual and cumulative account-return rates are available dating back to Jan. 1, 2009. These returns, along with asset mix and sector and regional exposures, can be compared to various benchmarks, client-selected target-return rates and the performance of six model portfolios.

An RBC Direct Investing tool generates a list of suggested asset-class trades to rebalance back to the investor's target asset mix. Clients with several accounts can choose which ones to group together and analyse as one portfolio. These tools make it easy for a do-it-yourself investor to do a complete portfolio-performance assessment.

Performance assessments are an essential element of successful investing, yet standards of practice vary considerably in Canada. Getting the information you need to determine how your investments are doing is dependent on where your accounts are held.

If your current financial advisor or discount broker is unable to provide the information or tools you require to properly monitor your portfolio, it may be time to shop around. I suspect that the advisors and discounters who do offer clients a superior standard of portfolio-performance assessment would love to have your business.

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