The Hallmarks of Performance Reporting

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With this most recent quarter-end, I was reminded of one of the best advantages of being an independent advisor (which means I'm not affiliated with one of the wall street behemoths). It's that I have control over my clients' performance reporting. Reports bring about critique from clients based on their perspective...what does or doesn't work for them and what they're used to seeing from prior experiences.

What's most fascinating is how little attention the behemoths pay to their reporting (or at least how little it appears to be). There are basic hallmarks of good reporting, in my opinion, that many investment houses miss altogether. They best examples of performance reporting provide:

  1. True performance return calculations. 
    There are merits to each calculation method, but the two best for most clients are Internal Rate of Return (IRR) and Time-Weighted Rate of Return (TWR). Many investment firms fail to provide any performance.
  2. Since-inception data.
    The majority of samples I review when onboarding new clients or helping someone review statements from another investment company present current year data only (maybe even current month or current quarter).
  3. Net investment gains or losses in dollars
    It's far too common for statements to simply report beginning balance, change in value, and ending balance...leaving the client to do all the math.
  4. Clear data on fees.
    No one wants their clients to know and understand fees. It's nearly a guarantee that this will be difficult to find on your statements, unless you're using an independent advisor.

Notice that I didn't even get to the presentation of this data, which is another whole blog all on its own. I'm merely pointing out that many investors aren't given this simple data to help them analyze the relative success of their investment strategy.

Now, for a few visuals to help explain what I'm talking about.

 IRR and TWR can help demonstrate different characteristics of your returns. We always shown at least one, and recently started showing both.

IRR and TWR can help demonstrate different characteristics of your returns. We always shown at least one, and recently started showing both.

If you have access to since-inception activity and performance data, you're in the lucky minority.

 Performance in dollars is incredibly helpful, but often missed on investment reporting.

Performance in dollars is incredibly helpful, but often missed on investment reporting.

Investment fees are the most elusive data point of all. Find an advisor who shows you this and you've achieved real transparency.

I'll certainly keep tweaking my reports as I continue my search for the best possible summary that I can provide, but I'll always strive to keep these core data points easy to find.