Performance or Process


As we move into the fourth quarter it looks more and more like 2015 may not be a particularly good year for investors. The year to date return for most mutual funds of all kinds is now break even or below, and this year will be remembered more for volatility than return. For all of us who earn our living from giving advice, it is a great time to reflect on what it is we are offering our clients.

We really have two choices when deciding what our value should be when it comes to the asset management side of our practice. Do we sell past performance or do we sell process? The former is much easier to make a sale with, the latter is much easier to sustain a practice with. In periods like today, where the last 12-18 months have been difficult, basing your practice on process begins to really pay dividends.

Our typical client really wants a relationship with someone who can bring clarity to all the noise and emotions surrounded with investing. They crave leadership and the ability to give them guidance when the media, their family, friends and co-workers are speaking financial nonsense. This investing game is difficult. It is fraught with emotional traps and subject to sequencing risk. GMO recently published a whitepaper showing how the same investors earning the exact same return over the exact same number of years could have a difference earn of either $1,000,000 or $300,000, just based on when their inevitable short period of “bad” returns occurred over their 20 year investment plan. With this type of backdrop, the best game plan is to rely on creating and consistently implementing a clearly defined, repeatable, scalable investment process that will survive the inevitable market cycles.

We suggest a quick inventory by asking yourself these questions:

  1. Once I get to the investment portion of my planning, do I have a discussion that my clients can understand? Does it bring clarity to the noise?

  2. Does my marketing material and proposal process reflect my unique investment approach?

  3. Is it a plan that they could tell their friends/colleagues about?

  4. How does my process account for sequence risk and the major effect market cycles can have on investment performance?

  5. What is my manager risk? (And yes, Indexing is a form of manager risk) Am I relying too heavily on the track record of one or more of my strategies?

  6. Does my ongoing client meeting agenda support my original sales process?

  7. Are the partners I have chosen constantly looking to improve their contributions to my success?             

Many of the answers to these questions will help you define what it is you are actually selling. There is a reason that we always have to say, “Past performance is no guarantee….” Let’s make sure as we begin to have these more challenging client meetings that we truly understand how that disclaimer relates to our own business.


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