Lookup any mutual fund online and you’ll know right away how the fund manager has performed year to date, last year and over longer periods.
Wealth managers provide a similar function. They also charge a fee for that service. Ever wonder why they don’t publish their results, as well?
That’s a great question, since many things in life are difficult to quantify, but investment returns are not one of them.
Why Not Be Transparent?
In the institutional world, investment reporting is not only common; it is expected. Clients demand that financial advisors report their performance so they can make an informed decision when hiring.
But that’s just not the case in the personal money management world. The Wall Street Journal brought this issue to light. In the article Financial Advisors, Show Us Your Numbers, Jason Zweig discusses why the vast majority of advisors tout the ability to generate returns for you but will not disclose their track record.
Unfortunately, that forces investors to evaluate these advisors blindly, without the benefit of actual data.
Look for the Global Investment Performance Standards
Some wealth managers will offer you their investment results, but it may not be in a form you can trust. You probably know it’s easy to cherry-pick results to make numbers look better than they are.
Fortunately, there is a better way to find out how good wealth managers are at their job. You can look for advisors that report using Global Investment Performance Standards, also known as GIPS®.
What Can GIPS® Do For You?
GIPS® is an international set of standards for investment reporting. These standards are maintained by the nonprofit CFA Institute who is responsible for credentialing investment professionals.
GIPS® is considered the gold standard worldwide for investment reporting.
Wealth managers can voluntarily become GIPS compliant, meaning they agree to report according to these standards, then have their reports verified by an independent third party.
What does this mean to you?
- You can assess a firm’s actual results, net of fees
- You can compare GIPS® compliant firms, apples to apples
- You can determine which firms are committed to transparency
John Odell, CFP®, is the Founder of Arroyo Investment Group, a GIPS® compliant firm specializing in helping individuals.
John is pleased with his decision to become GIPS® compliant over a decade ago. “While GIPS® compliance is not that well recognized by individuals, it helps people feel comfortable with our services. After all, why hire a financial advisor if they can’t prove they are benefitting your bottom line?“
Finding GIPS® Compliant Firms
When your money is on the line, you deserve to work with a firm that is committed to transparency. You can search for firms that comply on the CFA Institute website.