Advisers, Clients Not Always on the Same Page

How much do you trust your financial adviser? Enough to listen to him or her when you don’t agree? A new survey shows that most advisers and clients have different opinions on measuring a portfolio’s performance, according to Russell Investment.

Advisers (53%) measure a portfolio’s performance based on its progress toward meeting the clients investing goals, compared to only 29% of clients. Instead, clients like to see short-term factors. More than half (54%) look at one-year returns, 49% at the portfolio’s absolute return and 41% at the portfolio’s volatility.

"With the market volatility seen in 2011, it's not surprising that individual investors are fixated on one-year returns and portfolio volatility," said Frank Pape, director of consulting services for Russell. “But there is little actionable value in these short-term, backward-looking measures for the individual investor.”

In general clients are still pessimistic about the market whereas 78% of advisers were optimistic about the market over the next three years. Only 18% of clients seemed optimistic, but even this low number is higher than the 9% from December.

Despite this pessimism, clients still have higher expectations for portfolio returns than their advisers.

"The broad equity markets have already met or surpassed the expectations of advisors and their clients…” Pape said. “But we are only three months into the year and anything could happen. We've also gotten here with very little volatility, so advisors must continually talk with their clients to set realistic expectations and refocus them on the most important success metrics for investing.”

The two groups also differ in which topics to discuss. Advisers like to talk about portfolio rebalancing/shifting asset allocation (41%), but only 11% of advisers say clients have raised these topics.

Other topics advisers are more likely to bring up are portfolio performance (34%) and running out of money in retirement (30%).

Clients are often interested in different topics because they are driven more by emotional needs than rational needs, Pape said.