Many things in life are difficult to quantify. However, investment performance is not one of them.
Pull up information on any mutual fund, and you’ll see how much the fund has returned this year, the last five years, and the previous ten. With this information in hand, you can easily compare one fund to another.
The Case of The Missing Numbers
Ever wonder why your financial advisor doesn’t provide similar data on their investment results?
In the corporate world, investment reporting is the norm. In fact, large companies and institutional investors demand it. So financial advisors generally have to provide performance reporting just to stay competitive.
Why the disconnect when it comes to reporting to individuals?
According to Charles Rotblut of the American Association of Individual Investors, “I have to think investors would want to know that, but I don’t know how many are actually asking for it,” he said.
Given that your financial future may very well be at stake, it’s essential to recognize the need for this information and look or ask for it.
How to Get the Facts
A verbal sales pitch about investment performance is not enough. What matters are actual results, as well as consistency over the years.
Some wealth managers will volunteer their track record to you. However, before you take whatever is put in front of you at face value, know that some advisors may not play by the rules.
Many people, unfortunately, learned that lesson the hard way with Bernie Madoff.
That’s why you need to go one step further and ask for verified results reported according to industry best practices.
Why You Should Get to Know GIPS®
There is a gold standard for reporting results in an accurate, objective manner in the investment industry. These are known as the Global Investment Performance Standards, or GIPS® for short. GIPS® standards were created and are maintained by the nonprofit CFA Institute.
The CFA Institute is a worldwide professional association for investment professionals. Along with maintaining GIPS® standards, the organization is responsible for the credentialing of investment professionals.
Look for GIPS® Compliant Firms
Financial advisors who comply with GIPS® standards agree to measure their investment track record according to precise rules. They also must agree to have their results verified by an independent third party. These two steps help ensure that there’s no editing or cherrypicking of data to make it look better than it really is.
When presented with GIPS® compliant reporting, you can be confident that you’re looking at accurate results. You also get returns after the advisor’s fees and costs are factored in, which is vital.
Sadly, most financial advisors don’t choose to adhere to GIPS® standards. According to the CFA Institute, only about 1,700 firms worldwide complied with GIPS® standards in 2020. Of those firms, most work primarily with institutions and corporations and not individual investors.
John Odell, CFP®, Founder of Arroyo Investment Group, is one of the few GIPS® compliant firms specializing in helping individuals. After over three decades in the business, he’s proud his firm is GIPS® compliant. “Yes, being GIPS® compliant requires an investment time and money. However, we believe it is important to give individuals the same level of service usually reserved for the largest corporations and institutions. When your future is at stake, you need information you can rely on.”
Comparing Apples to Apples
Probably the most significant benefit of GIPS® is the ability to compare financial advisors…apples to apples.
This level of transparency lets you make educated decisions about who you hire. It also allows you to monitor that they continue to do a good job for you year after year.
Don’t Settle For Less
When your future is at stake, don’t settle for less. Ignore the sales pitches and instead look to the actual results.
Wondering where to start? Here’s a source where you can find GIPS® compliant firms near you. Or, some financial advisors to individuals will work with you anywhere, virtually.
If you are looking for a GIPS® compliant firm, Arroyo Investment Group offers a free second opinion on your investments to see if we can help you.