How to Evaluate Your Advisor's Investment Performance

How can you evaluate your advisor’s investment performance? We discuss why it’s an important question to ask, why it’s challenging to answer, and why you should be skeptical if the answer is only about past performance. Investing is different from other disciplines because past performance tends to not persist, even for sophisticated institutional investment managers. We also talk about the ways the industry obfuscates historical benchmark relative performance.

 

Chapters

00:00 Understanding Performance: The Right Questions to Ask Advisors – why it’s a tough question to answer and why it should be that way

04:30 Asset Allocation and Stock Selection – the two components of a proper performance attribution analysis

08:33 Use Long Run Historical Returns as Expectations1 – to hedge against the emotional power of narratives that surround short-term performance (0-5 years)

11:18 Persistence is the Difference Between Skill and Luck 2, 3 – investing is different than other disciplines because the evidence doesn’t support persistence

21:06 Seeding, Merging and Closing Strategies 4,5 - three ways managers are disguising their true performance

25:17 Taking More Risk Than Benchmark – especially in lower volatility asset classes like bonds, picking a favorable benchmark is a common tactic to be aware of

30:23 Moving the (Benchmark) Goal Posts 6, 7 – underperforming funds change their benchmark to something they historically beat…

33:15 Even Institutions Funds Can’t Find Performance Persistence 1, 8, 9, 10 – they also buy good looking past performance that becomes average performance

40:03 Evaluating Advisors: Did They Do What They Said They Would? – can they explain their process, the decisions behind it, and the resulting performance

48:46-51:44 Pat’s 4 Questions To Ask Advisors – Fees, Diversification, Structure, and Tax-efficiency

 

Sources

1 What Can We Learn from Elite Endowments? (Greenspring, 2025) - https://youtu.be/2wXKgVGUmyo?si=5hd-pN_GUv_fUtO5

2 SPIVA Persistence Scorecard (2025) - https://www.spglobal.com/spdji/en/spiva/article/us-persistence-scorecard/

3 Fund Landscape (Dimensional 2024)- https://www.dimensional.com/us-en/insights/the-fund-landscape

4 The Arithmetic of Active Management (Sharpe, 1991) - https://web.stanford.edu/~wfsharpe/art/active/active.htm

5 Fund Mergers and Liquidations (Dimensional, 2024) - https://www.dimensional.com/us-en/insights/mergers-and-liquidations

6 How To Beat The Stock Market Without Even Lying (WSJ, 2024) - https://www.wsj.com/finance/investing/stock-market-fund-benchmark-change-11660940613

7 Moving the Goalposts? Mutual Fund Benchmark Changes and Relative Performance Manipulation (Mullally and Rossi, 2024) - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4145883

8 Performance Persistence in Institutional Investment Management (Busse, Goyal, Wahal, 2006) - https://ssrn.com/abstract=890319

9 Choosing Investment Managers (Goyal, Wahal, Yavuz, 2022) - https://ssrn.com/abstract=3651476

10 Mutual Fund Flows and Performance in Rational Markets (Berk, Green, 2003) - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=383061

 

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.