Insightful Investment Communications
May 11, 2010
Explain performance against expectations
It’s often a challenge for investors to easily understand the role of specific funds in their portfolios and how they should expect them to perform in various market environments. Differentiate yourself from other financial advisors by providing the following explanations in your quarterly report:
- How each fund performed against your expectations, as well as against your stated benchmarks. Did the fund fulfill its intended role?
- Why fund performance exceeded or fell short of expectations, considering the recent quarter’s market environment. What are the drivers of over- or under-performance, and do those drivers fit with your expectations for how the fund is managed?
Below are two hypothetical situations that will help you better understand how to build trust with clients by explaining performance.
Situation #1 |
What to include in the quarterly report |
A relatively conservative international equity fund in your client’s portfolio trailed the MSCI World Index by 150 basis points during a robust period of global stock market advances. |
Remind clients why you selected this investment for their portfolio. Explain how the fund performed against your expectations, calling attention to its conservative charter. |
Situation #2 |
What to include in the quarterly report |
The large cap value fund in your client’s portfolio generated 300 basis points in excess of the S&P 500 during a quarter that witnessed a historic technology rally. |
Explain why the fund outperformed its benchmark and how this differed from your expectations given the recent market environment. |
Make it easy for clients to interpret data
Include pie charts, well-designed tables, and clear graphics to help your clients follow your stories. When comparing results against benchmarks, show the differences between the two (e.g., +3 percent, -1 percent) along with the actual comparisons. Your client should not need to pull out a calculator to get the underlying message.
Use the delivery of client reports to demonstrate your commitment to the relationship
One week before sending out reports, contact your top clients to schedule conversations about the results. This provides three benefits:
- It demonstrates that you care.
- It builds trust through open and transparent communications.
- It gives you an opportunity to assess their needs.
Use off-cycle investment communications to further enhance trust
- Deliver monthly educational pieces that communicate your point of view. Avoid reiterating market commentary that clients can easily find in the media. Instead, deliver thoughtful educational pieces on investment topics relevant to your clients, such as the pros and cons of ETFs, strategies for managing investments during inflationary times, and when to use hedge funds.
Send these pieces via email, attached as a PDF file. Encourage clients to share your insights with friends and family members.
- Formally and consistently communicate with your clients about all new funds you plan to include in their portfolio. Explain your top three reasons for adding each new fund and your expectations for its performance.
- Call clients in advance of any major portfolio shifts. Most people dislike surprises, so inform them of the changes and the reasons behind them beforehand.
Take the extra effort to build trust
Implementing the recommendations in this article will entail some additional work and commitment of time in the short term. But over the long term they will engender greater trust from your clients, which will in turn result in greater, sustainable profitability for your firm.
Ani Yessaillian is the principal and founder of Excella, a Boston-based strategic marketing firm that delivers custom solutions to financial institutions of all sizes so they can accelerate profitable growth. Excella's clients include leading brokerage firms, asset management firms, and registered investment advisors.
Contact Ani at or 617 886-6001
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