Rodgers Investment Consulting - Counselling

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Counselling - INVESTMENT PERFORMANCE

The selection of an investment counsellor is often based on comparisons of past performance. The investment counselling profession was first developed for pension fund management, so these types of firms are accustomed to providing accurate performance data for their institutional clients and can do so for individuals as well. Typically, funds invested with a brokerage firm do not have their performance measured or reported, and their clients may find it difficult to gauge their progress.

Clients should always remember that when evaluating performance results, past performance is no guarantee of future performance. Historical performance data should be used only as an indication of a manager's past professional competence and should be evaluated within the context of a client's individual objectives and the market environment over that time period.

There are three primary ways that investment counsellors typically present performance data to prospective clients. The first and most often prescribed method presents a composite of accounts managed by a firm, in accordance with AIMR standards. To comply with these standards, all of a firm's managed accounts that have similar objectives would be included in a composite average. The resulting performance numbers, which are quoted before fees, are highly representative of the competence of the investment counselling firm. Although this method is not yet universally used, it is likely to become more common, both as prospective clients demand it, and as investment managers upgrade their systems to allow for the capturing of historical data and the calculation of time weighted returns.

The second method is on a comparative basis and is also stated before fees are deducted. Firms that manage pension accounts often have an external performance measurement which they can present to prospective clients. Their portfolio(s) would be ranked against other institutional accounts. When evaluating this type of performance, it is important to understand the constraints placed on both the portfolio and the universe of securities the investments are selected from. Relative performance also can be measured against a benchmark such as the Toronto Stock Exchange 300 stock index or the Standard and Poors 500 index of U.S. stocks.

Thirdly, if a firm manages mutual funds in addition to private accounts, it can use the data from these funds to illustrate historical performance. This information, shown after fees have been deducted, will have a high degree of integrity and will be publicly available through the financial press. Prospective clients should ensure that they understand the objectives of the fund to determine the appropriateness of that style of management for their own account. Most investment counsellors will manage all portfolios with similar objectives on a consistent basis so these fund portfolios can be a valid representation of a firm's capabilities.

Although these are the most reliable methods of performance measurement, other ways do exist. However, we would caution the prospective client that the above noted methods are considered the most appropriate for potential clients to assess an investment manager's track record, and will be used by the firms listed in this directory.