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Talking to Your Clients About Performance

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When an image is formed on our retinas, it starts out upside down. The optic part of the brain puts in some hard work to flip that image so it makes sense to the way our brain wants the world to look.

Too often when talking about performance, clients receive their information upside down, and it never gets flipped so they can see it correctly. Their advisors don’t put in the work to help them see their information right side up.

Talking about performance, and setting expectations about a portfolio’s returns, are fundamental elements of being an advisor. With the wealth of knowledge and technology available to us today, there are some concrete steps that advisors can take to make the process of understanding easier.

The Theory of Simplicity

As we delve into the idea of talking about performance with clients in a way that makes sense to the average investor, I want to start with modern portfolio theory. Modern portfolio theory attempts to maximize returns in exchange for a given amount of risk, or on the flip side, minimize risk for a given expected level of returns. The way risk and return are managed is through a careful selection and allocation of assets.

It’s likely you’re at least somewhat familiar with this idea, even if you don’t actively recognize modern portfolio theory as the driving force behind the investment decisions you help your clients to make. The importance of diversification and asset allocation are critical in managing risk and helping to set client expectations for the rates of return they may be able to expect.

Now, all that said, modern portfolio theory can be complex. You can’t begin a meeting with a client talking about asset diversification without first explaining some of the terminology you’ll be using, but modern portfolio theory can set the framework you draw from when discussing risk and returns with your clients. If you need some assistance, there is technology available to help guide those conversations.

Connecting the Dots

Once you have set the stage for how you want clients to think about risk and return, the next step is regularly reporting to them how you’re doing, or in other words, how their actual returns are stacking up against the returns they’re expecting given their level of risk.

How do you do that? Your performance reports need to be more detailed, and even more importantly, accessible. Take a quick look at what you’re sending right now. Are you preparing reports for every type of learner in your client base? Reports need to be tailored to learning style. If all of your reports are a bunch of charts and numbers, you’re probably missing out on a lot of your client base.

Performance reporting is education. Incorporate visuals into your reporting. Show graphs over time, bar charts, pie charts, whatever it takes to most easily communicate to your client how their portfolios are doing. Complex equations and numbers won’t seem so bad to a visual learner if you give it to them with an image instead of a row of text.

Re-evaluating how you present performance information to clients is critical to maintaining ongoing success. Returning to our theme of education, take a step back and identify if you need to give more exposition during your next meeting. Use simplified terms when describing risk terms like beta, alpha and others. You may be using words that you think aren’t jargon, but in fact can be misleading or misunderstood by the client. And finally, incorporate risk analysis into your performance reports. The best way for your client to be reminded of the portfolio strategy you’re looking to replicate is to show them how you are managing not only returns and growth, but how you’re managing risk on their behalf.

All in the Framing

When you frame your client’s performance evaluation around a visual report, you open up a simple avenue for demonstrating multiple ways their portfolio can turn. Take advantage of the information available to you and the client to go beyond the current market conditions, building a conversation that looks ahead can help you show clients how their portfolio will react in a bull market versus a bear market.

When you’re giving clients more information, you want to give it to them in a way that they’re going to receive it most effectively. Do not restrict your educational capabilities to just one-on-one meetings or through a new report you send out quarterly. Got a Client Portal? Put it to good use. Include your performance reports on web screens so clients can access them any time they want. Fostering more communication is a good thing. You need to create avenues for it to grow; don’t hide from it.

Using your position as an expert to educate your clients about performance with clarity will result in more loyalty, trust, and a healthier overall advisory firm. You can begin educating clients more effectively by starting with their expectations around risk and return. Remember, you hold the value of the human touch and ability to provide guidance and consultation, a value that cannot be replicated by online advisors. Use your resources to provide your clients with what they crave — an advisor who cares about their personal situation and can make them feel like they’ve been put on the best path to sustainable success.


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