94 per cent of wealth managers claim to deliver first-quartile performance by choosing different criteria to suit their needs. They can’t all be right. Investor beware, says @MoiraONeill https://t.co/sG3hKUZJQl

— Personal Finance (@ftmoney) August 17, 2023

The FCA will read Moira O’Neill’s article with interest. This month they commended fund  and wealth managers for improving their value assessments, but clearly their financial promotions have some way to go.

19 our of 20 fund managers clearly can’t be in top quarter of performers. That’s like promoting every football team not in the relegation zone.

While every dog has its day, “dog-funds” can’t be labelled top quartile. Likewise, fund managers can’t be labelled award winning, for entering every fund award and getting lucky once.

Moira’s article is disturbing as it gets under the skin of what is going on. I used to think that selective fund performance was just a matter of finding a period of time when a fund did well against its peers. This still is the case according to ARC – the fund analysts.

ARC says the reason is that when investment managers are presenting to potential investors and advisers, they have a great deal of latitude over the time periods used to capture performance.

That could be stopped by requiring all funds to quote against standard period, as the DWP is trying to do with net-performance tables for Value for Money assessments.

By including good quarters (or even months) and excluding bad ones, a bad manager can find itself at the top of a table – while delivering terrible outcomes to investors.

But there are other ways to show yourself in a good light against peers.

Moira points out that there can today be several versions of the same fund, each of which have different performance tracks.

ARC says by selecting a particular investment solution to showcase performance rather than the average outcome, a majority of discretionary managers can present results that show them to be top-quartile performers.

The better way to tell how you have done.

Whether you count yourself a saver or an investor, you should be more interested in how you’ve done than how your fund, asset or wealth manager is telling you , you’ve done.

The only way to test performance net of costs is to compare what you put in , to what you can get out. If you made multiple investments, you need to do this on a time-weighted basis.

It is not complicated if you use the technology that measures internal rates of return. Measuring the actual return on client portfolios requires nothing more or less than contribution data and the realizable value of the investment (the net asset value or NAV).

If you want to know how your investment has done, you should ask for the internal return of your investment based on your data.

As you can see below, the calculation isn’t easy to do yourself but it’s easy enough to create a program to do the work. It’s less easy, if you are accountable for the results, to publish them.

If your fund or asset or wealth manager cannot give you this information, you should contact me at AgeWage and we’ll do the calculation for you.

Of course we can’t tell you how you’ve done against others, because there are no standard reports using IRR. That will happen in time but transparency is a long-play. However , we can tell you how you’ve done against the average return of the market you are in (the index).

And while we wait for transparency in these matters to arrive, we can continue to champion performance to be measured on how people have actually done, not what the fund , asset and wealth managers , have us believe.