Can Advisors Really ‘Do It All?’
The desire to structure and manage client portfolios is oftentimes part of the advisor's value proposition. Selecting investments and being responsible for those decisions can be a worthwhile endeavor. But how effective is it in the long run?
Given that a major portion of industry managed account assets are in advisor-managed programs (APM)—some $1.5 trillion—we thought it would be useful to look at the performance of these portfolios, not only year to date as of 7/31/18, but over one-year and three-year periods, as well.
We dug into the data held on the ENV Analytics platform to answer a few fundamental questions:
- What percentage of advisors are outperforming their benchmarks and delivering alpha?
- What percentage of advisors are generating negative returns for their clients?
- What differentiates top-performing vs. bottom-tier advisors?
Most of the assets held in Envestnet’s APM program are in the moderate risk tier.
Thus, we focused our analysis on the moderate risk tier over three different time periods: year to date as of 7/31/18, which covered 2,100 advisors; one-year performance, which comprised 1,900 advisors; and three-year performance, which included 1,200 advisors.
We found that studying returns net of the benchmark, especially those that varied materially from the benchmark—either up or down—was much more instructive than merely analyzing absolute account performance by advisor. What was disconcertingly consistent was the high percentage of advisors who generated negative alpha over the three periods analyzed (see left chart below). Nearly 60% of advisors were in negative territory, once the benchmark performance was subtracted from their performance.
Even more revealing was our finding that around two-thirds of advisors generated returns that were either 1% above or actually below 0. (see right chart below).
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