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Are You an Advisor or Reporter? W E A L T H C A R E Monitoring

Are You an Advisor or Reporter? W E A L T H C A R E Monitoring. Your Value Proposition With Wealthcare:. “I make the most of the one life you have by confidently achieving the goals you personally value, without undue sacrifice to your lifestyle

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Are You an Advisor or Reporter? W E A L T H C A R E Monitoring

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  1. Are You an Advisor or Reporter? W E A L T H C A R E Monitoring

  2. Your Value Proposition With Wealthcare: • “I make the most of the one life you have by • confidently achieving the goals you personally value, • without undue sacrifice to your lifestyle • and avoiding any unnecessary investment risks.”

  3. Your Service Commitment With Wealthcare: • “I make the most of the one life you have by • confidently achieving the goals you personally value, • without undue sacrifice to your lifestyle • and avoiding any unnecessary investment risks.” • OBSERVE THAT IT IS THE SAME!

  4. Does a performance report help you deliver this? • “I make the most of the one life you have by • confidently achieving the goals you personally value, • without undue sacrifice to your lifestyle • and avoiding any unnecessary investment risks.” HOW???

  5. Sample Performance Report: • Last Quarter YTD Since Inception • Current Value $5,050,000 $5,050,000 $5,050,000 • Starting Value: $5,000,000 $4,800,000 $2,000,000 • Net Contributions/(withdrawals) $0 $0 $1,500,000 • $ Gain/(Loss) $50,000 $250,000 $1,550,000 • Total Return in % 1.00% 5.21% 44.29% • Custom Benchmark1 1.25% 4.88% 49.52% • Trailing Annualized Returns: Your Portfolio Custom Benchmark1 Difference • 1 Year 31.65% 29.92% +1.73% • 3 Years 1.07% 1.17% -0.10% • 5 Years 3.20% 2.99% +0.21% • Inception (6.5 years) 5.80% 6.38% -0.58%1Custom Benchmark Allocation:

  6. WHAT??? Sample Performance Report: • Last Quarter YTD Since Inception • Current Value $5,050,000 $5,050,000 $5,050,000 • Starting Value: $5,000,000 $4,800,000 $2,000,000 • Net Contributions/(withdrawals) $0 $0 $1,500,000 • $ Gain/(Loss) $50,000 $250,000 $1,550,000 • Total Return in % 1.00% 5.21% 44.29% • Custom Benchmark1 1.25% 4.88% 49.52% • Trailing Annualized Returns: Your Portfolio Custom Benchmark1 Difference • 1 Year 31.65% 29.92% +1.73% • 3 Years 1.07% 1.17% -0.10% • 5 Years 3.20% 2.99% +0.21% • Inception (6.5 years) 5.80% 6.38% -0.58%1Custom Benchmark Allocation: Is there ANYTHING on THIS report that even REMOTELY relates to: “I make the most of the one life you have by confidently achieving the goals you personally value, without undue sacrifice to your lifestyle and avoiding any unnecessary investment risks.”

  7. WHAT Does that mean to me??? Sample Performance Report: Therefore…??? You keep saying “YOUR BENCHMARK”…but how did it end up as “my benchmark?” • Last Quarter YTD Since Inception • Current Value $5,050,000 $5,050,000 $5,050,000 • Starting Value: $5,000,000 $4,800,000 $2,000,000 • Net Contributions/(withdrawals) $0 $0 $1,500,000 • $ Gain/(Loss) $50,000 $250,000 $1,550,000 • Total Return in % 1.00% 5.21% 44.29% • Custom Benchmark1 1.25% 4.88% 49.52% • Trailing Annualized Returns: Your Portfolio Custom Benchmark1 Difference • 1 Year 31.65% 29.92% +1.73% • 3 Years 1.07% 1.17% -0.10% • 5 Years 3.20% 2.99% +0.21% • Inception (6.5 years) 5.80% 6.38% -0.58%1Custom Benchmark Allocation: Your Conversation… “Last quarter we were a little behind your benchmark due to the overweighting in value stocks that occurred due to their strong performance in the prior quarter. Despite that, we are still ahead of your benchmark YTD, for the last year and also the trailing 5 years and only slightly behind your benchmark for the last 3 years and since inception.

  8. WHAT Does that mean to me??? Sample Performance Report: Therefore…??? You keep saying “YOUR BENCHMARK”…but how did it end up as “my benchmark?” • Last Quarter YTD Since Inception • Current Value $5,050,000 $5,050,000 $5,050,000 • Starting Value: $5,000,000 $4,800,000 $2,000,000 • Net Contributions/(withdrawals) $0 $0 $1,500,000 • $ Gain/(Loss) $50,000 $250,000 $1,550,000 • Total Return in % 1.00% 5.21% 44.29% • Custom Benchmark1 1.25% 4.88% 49.52% • Trailing Annualized Returns: Your Portfolio Custom Benchmark1 Difference • 1 Year 31.65% 29.92% +1.73% • 3 Years 1.07% 1.17% -0.10% • 5 Years 3.20% 2.99% +0.21% • Inception (6.5 years) 5.80% 6.38% -0.58%1Custom Benchmark Allocation: Since a performance report constantly measures the difference between what actually happened in the client’s portfolio comparedto “their benchmark”, shouldn’t the client really VALUE the benchmark? How closely do they relate to it? How was it determined? Your Conversation… “Last quarter we were a little behind your benchmark due to the overweighting in value stocks that occurred due to their strong performance in the prior quarter. Despite that, we are still ahead of your benchmark YTD, for the last year and also the trailing 5 years and only slightly behind your benchmark for the last 3 years and since inception.

  9. ? TRUE or FALSEDetermining “their benchmark”: • Most clients, when I first meet with them and ask about their financial goals say something like: • “What is really important to me, is to have a portfolio that over at least a 5-10 year time horizon produces a greater mean return with less standard deviation than a passive index blend comprised of 37% large cap core, 18% small cap core, 4.5% to both large and mid cap value & growth, 18% small cap core, 2% small cap value & growth, 13% foreign and 10% intermediate bonds.” THEN WHY IS THAT WHAT YOU ARE MEASURING?

  10. ? TRUE or FALSEBecause that was the most efficient portfolio for their risk tolerance?: • Most clients, when asked about their risk tolerance say something like: • “My risk tolerance is based on the standard deviation of the portfolio returns and provided the portfolio has low tracking error relative to its style and market cap benchmarks, I can tolerate a standard deviation of 17.7%.” Yeah…that’s how they “connect” to“THEIR BENCHMARK”

  11. ? TRUE or FALSEActually, my clients do not really understand standard deviation, but THEY DO understand downside risk: • Most clients, when asked about their risk tolerance say something like: • “Measured at the 95th %-tile one year downside risk, I can tolerate a loss in my portfolio of 13.47%. Of course, I understand there is a 1 in 20 chance of doing worse than this in any one year and my downside tolerance contemplates the 1 in 50 chance of a 20% decline and a 1 in 100 chance of a 31% decline.” Do they (or you) understand thatdownside risk can nearly double betweenthe 95th & 97th percentile?(that’s a 5 in 100 chance versus a 3 in 100 chance)

  12. ? TRUE or FALSEI focus my performance reporting on a conservative absolute return that achieves their goals… • Mr. Client, you need an 8% return to achieve your life goals and the portfolio allocation I recommend has a 90% chance of exceeding that return over the next 30 years… • Of course, there is a 45% chance you will do less than than over the next year, 39% you’ll be under that over the next 2 years, 38% you’ll be under after the next 3 years, 34% under after the next 5 years, and 26% chance you will do worse than that after the next 10 years. That’s why we are “long-term” investors. Did you know there was better than a 1 in 3chance of doing worse over 5 years?

  13. 8% With a portfolio that has a 90% chance of exceeding an 8% return over thirty years, the 63rd %-tile might produce DOUBLE the ending value… • Like 15 years or so… All you need to do is get the clientto “stick with it long term”

  14. This?- Target allocation to 37% Large, 19% Small, X% Value, Y% Growth? - Efficient portfolio for standard deviation tolerance?- Efficient portfolio for 95th %-tile downside risk tolerance? Specific return along with 10 or more years of patience? AND, assuming YOUR benchmark is somehow tied to their goals, the client was clairvoyant so they never change their goals or priorities and everything in their life AND the markets go according to plan? Or This? Comfortable Retirement Educate Jr. Travel Buy a beach house Golf AND, contemplating their life and the markets may not go perfectly according to plan and their goals and priorities will change over their life Connecting to clients…

  15. This?- Target allocation to 37% Large, 19% Small, X% Value, Y% Growth? - Efficient portfolio for standard deviation tolerance?- Efficient portfolio for 95th %-tile downside risk tolerance? Specific return along with 10 or more years of patience? AND, assuming YOUR benchmark is somehow tied to their goals, the client was clairvoyant so they never change their goals or priorities and everything in their life AND the markets go according to plan? Or This? Comfortable Retirement Educate Jr. Travel Buy a beach house Golf (reduce savings) AND, contemplating their life and the markets may not go perfectly according to plan and their goals and priorities will change over their life Connecting to clients… Making the Mostof “Their Life” Performance Report “YOUR BENCHMARK”(REALLY Yours…not the client’s)

  16. Ongoing service still making the most of their life • What was important?Comfortable Retirement, Educate Jr., Travel, Reduce Savings (for Golf) • So what do we talk about in our review? THIS STUFF!! • Comfortable Retirement • Reduce Savings (for Golf)Educate Jr. • Travel

  17. Are Any Decisions Currently Needed? • >> Where they currently stand based on the markets & their goals AS LAST DEFINED • >> What to watch out for… Potential future decisions based on market results and THEIR choices

  18. Are These The Right Goals? • >> Does this still make the most of your only life?

  19. Are we still “spending” the lowest priorities? • >> Still retire later and compromise estate to reduce risk? • >> Still retire later and compromise estate to keep savings low for golf? • >> Still reduce estate to retire a bit earlier? • >> Still take more risk, retire later and compromise estate to spend more & travel?

  20. “But Dave, I’ve been doing quarterly reviews with clients for 15 years and they HARDLY EVER talk about that kind of stuff!” • REALLY? Honestly??? No Kidding? • I can’t imagine why…Do you think that is because “that stuff” is not really all that important to them? • Or, do you think it may have something to do with the performance review agenda, YOU SET…? • And the content of all the reports you go over?LOOK AT YOUR PERFORMANCE/PORTFOLIO REPORTS – WHERE IS THERE ANYTHING THAT WOULD FACILITATE A DISCUSSION OF GOALS AND PRIORITIES!!!

  21. Maybe my experience is weird and the clients of advisors that I’ve been doing this with are strange… • Client of advisor – August ’03 – Designed and accepted recommendations • Sept – ’03: Decided to sell 1999 Porsche Carrera for a new Maserati – New Advice • Nov – ’03: Unplanned two week trip to Italy – New Advice • Dec – ’03: Portfolio up 20%+, worried about market correction – New Advice • Jan – ’04: Wants to join Country Club and buy second home – New Advice • This client’s future comfort zone has not remained the same for more than TWO MONTHS!!What do you think is more likely?This client is very atypical, because most clients make up their minds and stick exactly according to plan, or…This client is fairly typical and the advice we are giving is atypical?

  22. Just as Wealthcare clients have a lifetime of choices… You have the choice as to how you service clients… • You can:Define benchmarks your client doesn’t connect to… • Talk about things that cannot be changed… • Risk your relationship on what the markets may randomly produce… • Bully your clients to “hang in there” and “stick with it long term” • Be a Reporter… • OR • Make the most of the one life your client has • Advise them of the choices they have to improve their life • And control excess uncertainty • Respond to their changing goals and priorities with new advice • Be an Advisor…

  23. Just as Wealthcare clients have a lifetime of choices… You have the choice as to how you service clients… • You can:Define benchmarks your client doesn’t connect to… • Talk about things that cannot be changed… • Risk your relationship on what the markets may randomly produce… • Bully your clients to “hang in there” and “stick with it long term” • Be a Reporter… • Which DO YOU CHOOSE? • Make the most of the one life your client has • Advise them of the choices they have to improve their life • And control excess uncertainty • Respond to their changing goals and priorities with new advice • Be an Advisor…

  24. Questions?

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