Is it Finally Time to Hold Wealth Managers Accountable?

hold wealth managers accountable


Today, we’re seeing increased volatility in U.S. stocks, but this has come after a long period of outperformance.  They say “a rising tide lifts all boats.”  Well, this rising tide of recent decades has made most everyone look like a skilled investor since most stocks have simply gone one direction: up.

But when your money is at stake, just assuming things will continue to go well is not enough.  You need a wealth manager that can manage your money effectively in all markets, especially the difficult ones.

Unfortunately, too many people find out too late that their financial advisor didn’t have the skills necessary to keep their money growing in all markets.

In the institutional world, investment managers are held accountable for their results.  Not only do they need to prove their ability with a track record to get hired, but they also need to keep it updated regularly.  If they start to falter, institutions will quickly pull their money.  It’s not personal; it’s business.  They simply need to preserve assets.

Why is it so Different in the Retail Investment Industry?

In retail finance, it is rare to have someone provide a verified track record of their investment performance.  But why would individuals demand any less than corporations and institutions?

In the Wall Street Journal article “Financial Advisors, Show Us Your Numbers,” Jason Zweig writes about wealth managers:  ”The vast majority still don’t (disclose their investment returns)—and probably won’t until investors smarten up and start demanding it.”

So sadly, most people end up trusting this critical role to someone they have no way to evaluate.

That’s Why Investors Should Get to Know GIPS®

Fortunately, there is a potential solution out there.  You can ask your wealth manager for an independently verified track record of their investment performance.

Some firms voluntarily comply with something called GIPS®, which stands for Global investment Performance Standards®.  GIPS® is a set of investment reporting standards maintained by the nonprofit Chartered Financial Analyst Institute.  These are accepted worldwide and are known as a “gold standard” for investment professionals to follow.

Global Investment Performance Standards

With GIPS®, firms report everything in a standard way, net of fees.  That way, you can compare investment track records in a relevant way.  In other words, apples to apples.  Also key is that firms can’t cherry-pick or adjust numbers, as GIPS® requires them to have their reports independently verified by a third party.

Here’s where you can find a GIPS® compliant advisor.

What if your Wealth Manager Doesn’t Comply?

Well, you can and should ask.  If enough investors start asking, that may pressure firms to act.

If they won’t comply?  Well, that’s your choice, but that may be a red flag that their investment skills may not be at the level you need to protect your money.

At a minimum, get a second opinion to make sure things are on track, and you are invested appropriately for your risk tolerance and goals.  Most quality wealth managers will provide a complimentary second opinion for you, so there’s no cost to you.  Or find a fee-only financial planner to take a second look.

As they say, an ounce of prevention is truly worth a pound of cure.


Looking for a wealth manager who is accountable to you?  

At Arroyo, we’re a GIPS®-compliant firm that brings institutional quality, high performance investment management and comprehensive financial planning to individuals and families.   Contact us today to see how we can help you.