Many times new prospective clients ask about "our returns." By this, they are referring to the return on investment (ROI) within the various products we use in financial strategies. It makes sense for prospective clients to be concerned with the growth of their money.
However the specific question, “What are your returns?” is not necessarily the right question to ask.
From a financial strategies standpoint, it is more important to value performance as it relates to a certain level of risk. Performance is not based on just a single dimension of ROI, but rather the return obtained based on the volatility of the risks taken.
For instance, if I am getting a particular return based on a particular level of risk, my return should be measured against comparable portfolio returns of similar risk. Ultimately, financial professionals strive to provide a higher return for a given level of risk, and also help determine the risk tolerance a client is willing take on.
So the more appropriate question to ask is, “Given my risk tolerance, what is your return relative to an appropriate market benchmark of similar risk?”
Ashvin Chheda, ChFC®, CLU®
Opes One Advisors
For more information, email Ashvin_Chheda@opesone.com, or call 214-346-0985.
It should be mentioned that the mathematical formulation of risk is the standard deviation of return. This means, the more volatile the return over time, the higher the risk (or standard deviation).
This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Financial Representative of The Guardian Life Insurance Company of America (Guardian), New York, NY.