Читать книгу Wall Street Potholes - Simon А. Lack - Страница 12

Non-benchmarked returns are great for the broker, though. You'd think that because numbers are the very essence of investing, they'd be used in discussing performance. It's really quite incredible how often results are presented without comparison to the alternative choice, or the relevant benchmark. A 5 % return can only be evaluated if you can compare it with what else you could have done with your money. In the case of non-traded REITs, the upfront fees and ongoing expenses represent a substantial impediment to outperforming or even matching any relevant benchmark. That's why the results are not usually compared with anything. Brokers love nothing more than to use adjectives rather than numbers to characterize the results they've achieved for their clients. It's so much easier to tell a client they were “up 7 %, which was good.” However, if the investment has lost money, the advisor may well resort to a comparison with a benchmark, such as, “you were down 9 % which wasn't bad considering equities were down 11 %.” It may or may not be a valid comparison. A balanced account with 50/50 stocks and bonds shouldn't be compared simply with equities.

Clients should always ask how a strategy will be evaluated. It's as simple as asking at the beginning of the relationship, “What should we both look at in order to correctly evaluate the performance of my account once you're managing it?” Ideally, it should be compared with a relevant benchmark. An equity strategy should be compared with the S&P 500 if the underlying stocks are large cap US equities. The Russell 2000 might be more appropriate if smaller stocks will predominate. A fixed-income strategy should be compared with a bond index, such as the Barclays Aggregate Index. It should be possible to agree on an index at the outset. If the advisor is any good, he shouldn't mind having his performance benchmarked. Many will try to argue that their strategy doesn't fit easily against a benchmark, or that a previously agreed benchmark is not relevant “for this type of market.” As the client, your response should be simple. Tell the advisor that if we can't agree on how to evaluate you, we'll never know if you're doing a good job. And if we can't tell how you're doing, why are we bothering with you in the first place?

Obfuscation of performance is the mediocre financial advisor's friend. Non-traded REITs are the perfect product for a salesperson who doesn't want to be evaluated other than on the fees he generates. There's no accepted benchmark and hardly any investment research. These factors work against the interests of the client.