Why We Should Change Our Measurement of Success


Why We Should Change Our Measurement of Success

When it comes to retirement planning, our industry’s priorities need to change. If we continue to measure our success against the market, we’ll always come up short of expectations. 

Case in point: In March, the Wealth Adviser Daily Briefing from the Wall Street Journal analyzed the benchmark performance for the mutual fund industry in 2015. Some key takeaways:

  • Not surprisingly, most stock pickers and active managers (66%) did not beat their benchmark index
  • 84% of active large cap managers did not beat the S&P 500 over five years
  • 82% did not beat the benchmark over 10 years 

Obviously, there is a bias toward exchange-traded funds and index investing in today’s planning. However, I argue there is another benchmark that is more important – the client’s benchmark. 

Clients rarely have a financial goal of exceeding the 10-year average of the S&P 500 performance. Instead, they usually have in mind a dollar amount where retirement seems achievable. We are noticing that dollar amount goal is shifting from a focus on the asset value to a focus on the amount of income that will make their retirement successful. 

So, instead of publishing the performance of active managers against an external index, why don’t we identify how many of their investors earned more than required in order to have a successful retirement? These investors should be held to the same fiduciary standard as the financial planners who are meeting with clients, working to ensure their goals are met. In a post-DOL world, we need to look at our entire industry differently and challenge our thinking as it relates to our clients’ goals and objectives.  

Going forward, we must align our goals with those of our clients in order to impact a meaningful change in our industry. The most successful financial planner will be someone capable of articulating how his or her financial planning process exceeded each individual client’s benchmark return or income goal. 

Winning Strategy

Instead of looking at external indexes to validate our performance, let’s focus on reaching our clients’ goals first. Each client has a unique target they need to achieve in order to retire successfully – let’s validate our success through their success.

About the Author

Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets.