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Clients Want More, Not Less, Portfolio-Level Data

By Murray Coleman March 8, 2017

Whether the DOL rule survives or not, advisor Tim Maurer sees growing momentum for raising fiduciary standards across wealth management.

But such a push isn’t coming from Washington, D.C. The head of personal finance at Buckingham Strategic Wealth, which manages $8.8 billion, believes advisors are learning from allied professionals like educators and clinical psychologists how to more effectively work with clients on guiding their investment behavior.

In particular, recent research by a team of European academics titled “Does Feedback on Personal Investment Success Help?” is pointed to by the Mount Pleasant, S.C.-based FA as particularly encouraging.

The piece examines how an online brokerage gave 1,500 traders more detailed data than normal about their transactions. Included were measurements of how much market risk they were undertaking and changes in portfolio concentration levels.

The authors report an almost-uniform change in investment behavior by those given such “regular feedback” on their portfolios. In particular, Buckingham’s Maurer finds it “significant” that trading activities plummeted as big-picture portfolio issues such as diversification and risk management took on increased importance with all involved in the field test.

“More than anything else, this research shows that while it might be important to bring clients lower-cost funds and a more transparent investment process,” Maurer says, “a higher fiduciary standard should also involve providing investors with more specifics about their portfolios.”

But in his 19 years as an advisor, Maurer suggests giving more specific portfolio-level analysis works best when “discussions begin at a place where a client has understanding” and “expand from there.” The ex-educator says a big red flag he sees in young FAs is that they “try to provide so much information and academic evidence” in support of strategic investment plans that “it overwhelms and confuses” the client.

He’s learned to sharpen his listening skills and to not walk into client meetings “presuming anything” that might lead to a rather “cookie-cutter” approach to portfolio reviews, Maurer adds. He tries to stay away from using pre-designed PowerPoint presentations and such to get conversations going.

“The first half of my career I tended to over-educate people,” he says. “But over time I’ve learned to give clients a little bit of information about what they’re really interested in learning, then educating them at their own pace.”

Andrew Miller

Andrew Miller, chief investment officer at Miller Financial Management in Muncie, Ind., sees much the same. His independent RIA, which manages $125 million, likes to build portfolios using ETFs focused on different market factors that his research shows can make the biggest contributions to improving investment returns over time.

The stock sleeve of a client’s portfolio might include six to eight different ETFs devoted to capturing market characteristics related to momentum driving shares higher, low valuations and capitalization sizes. Miller also talks to clients about the need to look at ETFs that invest in stocks with lower volatility traits and companies with track records of producing stable profits and relatively strong margins.

“Factor-based investing doesn’t eliminate poor investment behavior,” Miller says, “but it certainly makes our job of showing clients why they need to remain invested over full market cycles much more straightforward.”

William Sweet, an advisor at Ritholtz Wealth Management in New York, says he generally avoids jargon like “beta” and “alpha” when first striking up conversations.

At the same time, Sweet admits to judging his ability to develop deeper relationships in part on how well he sees people using and understanding more sophisticated portfolio concepts.

His firm, which manages about $440 million, has been a vocal advocate of so-called “evidence-based” investment practices – a process where advisors combine academic research and in-depth portfolio analysis to create a more “complete” understanding of what’s driving performance, from a market as well as a behavioral management perspective.

“Other than putting our clients’ interests first, education is probably the most important thing we do,” Sweet says. “The more evidence we can give them about what’s really affecting their portfolios over the shorter term, the more likely it is they’ll stick it out over the longer run.”