The quarterly client portfolio review is a tradition in the wealth advisory business that our firm has generally eliminated. Instead, these meetings have been replaced by 24/7 access to portfolio information and much more episodic electronic and phone interaction.
My recollection is that we started these meetings decades ago in order to stay in front of clients, inform them about recent happenings in their portfolio, and explain what was happening in the global markets. To be honest, though, the exercise was probably more about making sure we stayed employed. In my opinion, this practice exists more for the advisor than the client given that sound investment philosophy centers around the discipline of doing very little rather than engaging in frequent adjustments to one’s portfolio.
As Benjamin Graham notably said, “In the short run, the market is a voting machine but in the long run it is a weighing machine.” We need not—and likely cannot—weigh the performance of portfolios at frequent intervals.
Moreover, these meetings can be painful for everyone involved if the sole purpose is to report on investment-related returns. That act alone should take just a short period of time. Today we get our news minute-by-minute via our smartphones, rendering useless the need for advisors to provide stale information about global economics. The majority of client presentation decks I see show slides upon slides of mind-numbing charts attempting to illustrate why their firm has the unique ability to see into the future (yep, most advisors still use paper), followed by a few pages that clearly illustrate that the firm more than likely failed in their prior attempts to predict.
This Isn’t the Dentist
If so many participants dislike attending portfolio reviews, what’s the reason for these meetings? The dentist’s chair is often regarded as a less than desirable experience, but at least you know that going provides some measurable benefit. The same may not be true of the client portfolio review.
From the client perspective, most people who have hired advisors believe implicitly they’ve transitioned the responsibility for their financial success to a third party and now feel responsible for overseeing the overseer. The more data-oriented investors know they shouldn’t mess with their portfolios with any real frequency and spare themselves the visit simply to review performance over shorter durations.
From the advisor perspective, client meetings are, at a minimum, a touchpoint to help the advisor maintain their relationship with the client and, when effective, serve as an opportunity to gain important information about a client’s life in order to identify opportunities and react accordingly. My experience, unfortunately, is that these meetings often do little more than force advisors to cobble together data in an attempt to confirm, through fact or obfuscation, that the client has made the right decision by hiring that advisor.
Over the course of a few weeks last quarter, two client meetings where I act as an overall advisor—sitting on top of other advisors—created for me the epiphany that client meetings are not objective reviews for clients. Rather, they are an elaborate ruse that defies one of Albert Einstein’s rules of science: Things should be as simple as possible, but no simpler.
The meetings were anything but simple. And the data was beautifully manipulated. Even as a 30-year veteran steeped in the ins and outs of portfolio accounting and performance measurement, I found the reporting left out so much important data and added so much useless information that the 100+ page presentation accomplished its mission of highlighting the advisory firm and torturing the clients (and me) into submission.
We all lose when this happens. Clients likely overpay. Bad advisor inertia is frictionless and does not disrupt the path of charging premium pricing for a commodity service. And the cycle continues. Maybe next quarter we will say something. Or maybe not.
Time You Can’t Get Back
Unfortunately, too many advisors are stuck in the traditional style of client meetings. The meeting typically goes something like this:
- Small talk: Pleasantries and talk of the weather or family or often both: 15 to 30 minutes.
- Update on the markets: Slides on the markets and an economic update: 30 to 60 minutes or until the client is void of their senses and is secretly wondering when the advisor will just leave.
- Portfolio performance: Either a summary of performance or so many pages of incomprehensible data around performance that the client simply nods, praying the meeting is close to its end. In either case, the advisor has highlighted the best parts of the data and explained away or minimized the poor parts: 15 to 45 minutes.
- Fee review and after-tax performance info: Just kidding. They never tell you this.
- Next steps and/or paperwork: This is the part where a stack of papers is placed in front of the clients for signature and they sign willingly and with blind trust and with likely no idea what they are signing: 1 to 5 minutes.
Time Is Money
We’ve all heard the adage that time is money. This is true in many respects, but most certainly when it comes to the compounding of returns. But it’s also true when it comes to the time spent by advisors to produce materials for existing clients—particularly materials that do little to influence the portfolio or planning design. What if the time spent to travel to see clients, to produce their beautiful quarterly reports, to host fancy lunches with well-known speakers, etc. were all reinvested into reducing costs, improving planning and tax resources, or even better, technology to improve client access to useful information? And let’s be honest, it’s the rare advisor and client that enjoys these meetings when there’s nothing to accomplish except to survive another quarter.
Benjamin Franklin said in his teachings, “By failing to prepare, you are preparing to fail.” Advisors and clients alike should prepare for your next meeting by providing/requesting simple data that will inform you about the most important aspects of your portfolio returns. To assist, I’ve provided a sample questionnaire to prepare your advisor for a periodic client meeting. The basics are below.
- Oversimplify with appropriate comparisons:
a. What percentage of the portfolio is allocated to low-risk, liquid investments?
b. Subtract from 100 percent the number in 1(a) and use that mix for your proxy.
- Use simple market proxies to compare your performance:
a. Vanguard offers strategic portfolios of 40 percent, 60 percent, and 80 percent stocks with the balance representing bonds, or
b. Create a mix of global equities and bonds online using ETFs (like ACWI and AGG). Alternatives aren’t an asset class, so every decision to do something different should be measured against having stayed with the simplest option.
- Make sure you examine your returns net of all fees AND do your best to factor taxes into the equation:
a. Tax impact can be measured by subtracting the taxes that would be due at the appropriate tax rate for certain earnings.
b. Reduce those returns by the percentage of the taxes over the invested capital.
Steve Lockshin is a founder and principal of AdvicePeriod, and former chairman of Convergent Wealth Advisors.