We consider it a part of our duty to our clients to make as much progress as possible in resolving investment and planning questions as time allows.  Progress can be made in a few ways, and they reflect the basic models of our industry.  First, we can simply make recommendations, and execute them if there is agreement, without including significant education on the various implications.  As fiduciaries in many contexts, this would be ok, as we would be responsible for the outcomes to a significant degree.  Alternatively, we could educate the clients about all the various implications of a decision and leave the ball in their court.  Or we could court the middle path, where we provide the education needed for decisions and their wide-ranging consequences, and offer recommendations, commentary and analysis about the implications.  This is our model, and I believe that it results in the best overall experience for our clients.  It has one drawback, however.  It is time consuming and it requires a significant amount of client engagement.  To understand how much capacity a client has for the discussion involved, we need to appreciate the depth of their engagement in the issue and in their planning overall.  The more engagement a client evidences, the more detailed our discussion can be on the topic, without exhausting their interest. 

Depth of engagement is an intangible concept, but we think about it in a few ways.  It can be loosely thought of as the amount of interest that a given client has in understanding their financial situation, and how active they are in decision making, and in dedicating time to learning about and advancing their understanding of the nuances of their individual situation or plan.   You might think of this as the percentage of available individual capacity dedicated to investment decision making and financial planning, or in terms of the amount of measured progress from generalities to specifics in their understanding of their plan or situation over time.  Like all similar measures it has elasticity.  Sometimes available time shrinks, and at other times expands.  On top of the expansion and shrinkage of available total time, there is an expansion and shrinkage in the amount of time somebody wants to commit to dealing with financial questions.  From our perspective, we must try to make the most progress with the available capacity, and find ways to combine general education and specific recommendations. 

We could save time by just telling clients what they should do.  That would always require less time.  Hoowever, recommendations without education are problematic, how can you expect a client to make decisions without all the facts and important nuances?  The converse also presents problems.  If we educate without bearing in mind the specific needs of the client, and providing an endpoint to help them make some decision or take some step in their plan, have we done anything of lasting value for their situation?   We are financial advisors, and being simply an educator seems like taking an easy way out.  We are paid to give advice.   Depth of engagement, as we observe it, is the metric by which we see how much granularity we can and should offer in any certain client situation.  Having a sense of current levels of engagement on given topics, or overall planning, looking at the relative complexity and education required for the next decision in a planning discussion, we can call on the client to shift or add capacity, so that we can focus on some pressing or approaching question.  We can then prioritize the educational resources marshalled and more directly address important issues with the time the client has allotted to the topic. 

So, what is the relevance of performance reporting in this case?  I can think of three ways that the addition of reliable performance reporting relates.  First, it helps us to manage capacity.  If a client has only “x” hours available to dedicate to financial planning and investment decision making, and we may have to spend a significant amount of that time discussing relative and absolute performance, answering questions about past performance, and discussing the performance of relevant indices and benchmarks, we are taking time away from other issues that might be timely and in need of focus.  This sometimes happens when news stories roil the financial press, or when competing economic commentary crosses our client’s inbox.   Some clients like to be able to quickly see what relevant information is available about their performance, when such questions arise.  With information about holdings, allocation and performance readily available, we can handle these questions more efficiently and professionally, including real data rather than simply subjective considerations.  Other clients only want to have this information presented to them at certain intervals, and having a concise report is useful is being able to provide the desired information in an efficient manner, so we don’t need to spend two hours on a subject that only needs one.

Then there is the other less obvious capacity constraint.  I think of it as “mental shelf space.”  The average person is only going to dedicate a certain percentage of their time to thinking about their finances.  If that time is spent worrying about how their investments are performing, and not being able to arrive readily at an answer, they might decide to go digging through their statements and trying to figure it out with a yellow legal pad.  This might take a lot of their time, and a lot of energy, and potentially leave them frustrated because they felt like it was a giant headache.   I think I can say that we have found client frustration to be a definite detriment to client engagement. 

Finally, we believe that customized performance reporting solutions help us to address specific client interests with the level of detail preferred by a specific client.  Having highly modular reports, that contain a wide variety of possible datum, and a mix of different ways to present the data to clients, is one of the keys to driving engagement.  This particular point was significant in our decision to partner with Orion as our provider of performance reporting.  We have clients who want short, simple concise reports that only address very particular top-line issues, and we can customize reports that provide them specifically what they want in a format that is easy for them to follow.  For clients that want reports with vast amounts of detail, at the household, registration and account levels, with different information presented for each, we can make those as well.  Some clients just want an email with simple answers, others want a series of different kinds of reports to answer different questions that are on their mind, or to accommodate some mental or physical recordkeeping process that they use.  The kinds of reports, the level of detail, the frequency of distribution, the availability of the reports online and on-demand…all are significant variables, if you want to drive deeper engagement without requiring extra capacity from a client.  In short, being able to consistently answer the specific questions that a client has with quality data on their terms, helps to meaningfully create capacity for other questions that need to be addressed and improve the quality of client dialogue. 

So, in the next few weeks we will explore performance reporting.  In the end it is just one more way to improve a client’s experience.  Every major decision at PFYT is centered on our clients and how we can help to make their lives richer, and to make their experience with us better.  This is the next piece of that puzzle.  Say “goodbye” to Black Diamond, and to Morningstar, and say “hello” to Orion.  Coming this month.

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