With the development of financial technology, investment performance services have become more diversified and convenient. However, how to objectively evaluate various investment performance services has become a challenge for many investors. This article will analyze several key factors that investors should consider when reviewing investment performance services.
Look at the transparency of investment performance reporting
Transparency is crucial in evaluating investment performance services. Investors should look for services that provide detailed reporting on performance attribution, risk metrics, portfolio holdings, trading activities, fees and expenses. Services lacking transparency may hide poor performance or high costs. Investors should also ensure performance is calculated according to industry standards such as the Global Investment Performance Standards (GIPS).
Examine the investment philosophy and process
Investors should understand the investment philosophy, strategy and process used by the service. This includes factors such as investment objectives, asset allocation approach, security selection criteria, risk management practices, sell discipline, etc. The investment process should be logical, repeatable and applied consistently. Investors should be wary of services making unrealistic promises or using overly complex strategies.
Look for experience and expertise in investment professionals
The skills, experience and qualifications of the investment professionals managing the portfolio are critical. Investors should look for seasoned professionals with strong expertise in areas relevant to the strategy. Checking registration status, designations, education, industry tenure and track record can help ascertain the expertise level. Higher turnover in the investment team can be a red flag.
Evaluate historical performance across multiple time periods
When reviewing performance, investors should look across multiple time periods, including various market cycles. Strong short-term performance may not sustain, so longer periods are important. Performance should be evaluated on both absolute and risk-adjusted basis. Comparing to appropriate benchmarks can also provide useful context.
Check client references and complaints history
Speaking to existing clients about their experiences can provide valuable insights into the service quality. Investors can check resources such as the SEC’s Investment Adviser Public Disclosure database for registered firms’ disclosures including client complaints. Many online review sites also allow clients to post reviews anonymously. Serious or frequent complaints may indicate issues in practices or conduct.
When reviewing investment performance services, investors should thoroughly examine transparency, investment process, personnel expertise, long-term performance record and client experiences. Taking a rigorous approach helps identify services most able to meet investment objectives.