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We visit with the advisory community on a daily basis.  With the end of the year approaching, performance is a big topic of discussion.  We wanted to put up a few thoughts on the topic of how to discuss the positioning of portfolios and the related performance.  Some of the below is from us but the majority comes from successful advisers that do this and do it well…

An adviser’s value proposition for clients has to include their ability to help get what the market will give within each client’s risk constraints…not outperform it.  Start each relationship from that standpoint.

Performance should be framed in terms of process,  after-all, performance is the result of process.  The difficult thing is that over certain time-periods even the best process can produce ugly results.  It’s for this reason, education, communication, and transparency should be practiced consistently.

Don’t sell your service, fund, strategy, or anything on past performance.  That discussion inevitably leads to upset clients when that manager or strategy has a difficult few months (which will happen).  The actions that lead to potential strong performance should be stressed and environments that will cause under-performance should not be swept under the rug, but brought to the forefront.  Educating on the good and the bad helps increase patience – which is the gap filler when it comes to the behavior gap.   Celebrate the good times, be transparent during the bad times, and consistently communicate the supporting evidence.   Clients equipped with understanding are an asset on many levels.  Clients that are not equipped…a recipe for disaster.

Lagging indicators (performance) is the product of the leading indicators practiced (the process).   It’s the time periods when the value of the process is hard to see that advisers have to earn their client’s trust.  Do the work now.  Open the lines of communication.  Increase awareness of evidence.  Maximize your value through an understanding of what’s in the account and why it’s in there.  It’s in your client’s best interest.