The Blame Game: Advisor or the Market?

Given recent market volatility, it is quite common these days that clients may question the asset allocation and investment decision-making of the advisor as an ex-post hindsight reaction. Especially when the mark to market is negative. It is important to realize that the advisor’s performance must be appropriately benchmarked according to the asset class allocation profile of the portfolio. For example if the predominant investments are more fixed income in nature, then an appropriate bond index should be used as a benchmark, and the alpha (spread of portfolio returns over benchmark) along with performance relative to peers must be used as a tool to gauge the efficiency in investment decision making.

Advisors have a fiduciary duty towards client assets and will incessantly work to maximize returns on a given mandate by appropriately diversifying risk. There may be periods of extreme downside moves, where all asset correlations converge to 1, due to exogenous unpredictable events such as a pandemic. It is especially in these circumstances that the advisor’s competence and integrity be recognized profoundly, as it is most certainly a wider market phenomenon gone unnoticed.

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