As a follow-up to my Jan. 29 and Feb. 6 AdvisorOne blogs on measuring advisor performance, I had a conversation with Lon Dolber, founder and CEO of American Portfolios, a Holbrook, N.Y.-based independent broker-dealer.
Lon had the dubious distinction of having launched his firm on Sept. 11, 2001. But his timing doesn’t seem to have hurt the BD’s growth: Today, American Portfolios has 350 affiliated advisory firms with some $17 billion in client AUM. “Our timing was actually kind of a blessing,” he said. “We didn’t have anywhere to go but up. And we got a number of advisors right off the bat who were unhappy with how their former BD handled the crisis.”
Dolber’s done a lot of thinking in recent years about measuring advisor performance; both because clients are increasingly asking about it, and to identify advisors who might benefit from additional help in managing their portfolios better. His BD uses Albridge Wealth Reporting for its portfolio and account aggregation system, which allows him to track all of the accounts over which each advisor has discretion. “Then you can compare how they did compared to all the rest,” he said. “Here’s an advisor’s aggregate against a benchmark, and against his or her peers.”
To address the issue of different goals for different clients, Dolber compares advisors’ performance at managing similar kinds of accounts: low risk, balanced, and aggressive. It’s certainly a step in the direction of measuring performance, but not without issues of its own. For one thing, comparison-to peer performance can be hard for clients to evaluate. If an advisor is in a group of excellent portfolio managers, even being near the bottom of the group might be very good performance for the clients. (For instance, half of the doctors in the U.S. graduated in the bottom half of their med school class.) Conversely, placing at the top of a rather “mediocre” group of managers might not help clients reach their goals.
Dolber acknowledges these shortcomings in measuring advisor performance, and sees the demand for such metrics in the perspective of a larger problem: How advisors are compensated. “When you measure portfolio performance, what are you measuring?” he asks. “Investments? What about the other advice that advisors provide? What about the quality of that advice? We’re doing this, one step at a time. The next step is looking at the [overall business] model.”