• / Free eNewsletters & Magazine
  • / My Account
Home>Practice Management>Fiduciary Focus>The Futility of Chasing Returns

Related Content

  1. Videos
  2. Articles
  1. What You Need to Know About Estate Planning Today

    Every pre-retiree and retiree needs these documents, says estate-planning expert Deborah Jacobs.

  2. Portability Provision Simplifies Couples' Estate Planning

    Estate-planning expert Deborah Jacobs details how spouses can take advantage of the 'portability' tax provision, which allows them to maximize both partners' estate tax exclusion, and how this strategy differs from trusts.

  3. Estate-Planning Tips for Same-Sex Couples

    Family-law attorney Jill Metz discusses how same-sex couples can work around legal pitfalls regarding beneficiaries, Social Security, children, and more.

  4. How to Stay Smart With Your Estate Plan

    Estate-planning expert Deborah Jacobs outlines how to approach the estate tax exemption and gift tax rules, addresses a popular misconception about estates, and offers key documents that all individuals should have in place.

The Futility of Chasing Returns

There are a number of reasons why you should take presentations of outperformance with a grain of salt.

W. Scott Simon, 07/21/2016

W. Scott Simon is a principal at Prudent Investor Advisors, a registered investment advisory firm. He also provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. Simon is the recipient of the 2012 Tamar Frankel Fiduciary of the Year Award.

-----------------------------------------

Anybody who has been in the investment advisory business for any length of time knows that clients are gained and clients are lost. Some departing clients might receive something like the following missive from their advisory firms:

Dear Dr. Stanislaus:

I'm distressed to see that your medical practice is leaving us as a client. I well remember years ago when I first met with you and your colleagues at your clinic in Indianapolis.

The reason why you're leaving us is especially concerning to me: Big Bank showed you and your colleagues their portfolios that have earned high returns, and you fell for it. That makes you return-chasers.

No doubt it's easy to succumb to such allures, especially since the 401(k) portfolios our firm has invested and managed for you and your colleagues have experienced a period of relatively low returns over the last few years. You have likely been frustrated with those returns. Still, your returns reflect those of major asset classes the world over in which your low-cost portfolios are broadly and deeply invested. Nonetheless, you turned to other sources that were all too glad to show you those portfolios of theirs that achieved higher returns over the same time period.

One of the certainties of investing is that it will always be possible for you to find portfolios that have done better than your current portfolios. You might read about them in the media or hear about them from cocktail party chatter. Or, in this case, Big Bank showed you selected portfolios of theirs that did better--in the past--than your current portfolios did.

W. Scott Simon is an expert on the Uniform Prudent Investor Act and the Restatement 3rd of Trusts (Prudent Investor Rule). He is the author of two books, one of which, The Prudent Investor Act: A Guide to Understandingis the definitive work on modern prudent fiduciary investing.

Simon provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. He is a member of the State Bar of California, a Certified Financial Planner, and an Accredited Investment Fiduciary Analyst. Simon's certification as an AIFA qualifies him to conduct independent fiduciary reviews for those concerned about their responsibilities investing the assets of endowments and foundations, ERISA retirement plans, private family trusts, public employee retirement plans as well as high net worth individuals.

For more information about Simon, please visitPrudent Investor Advisors, or you can e-mail him at wssimon@prudentllc.com

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.