 Performance Analysis & Investment Discipline
The amount of work involved in this area will depend on the quality of the advisor’s own reporting, the complexity/sophistication of the investment strategy followed and the level of service selected. Investment discipline Analysis will look to relate portfolio activity to the manager’s core investment disciplines, if they indeed have them. This means how they value investments, what risks they consider acceptable, how they allocate, how they manage, when they buy and sell, how they justify their decisions and whether their stated disciplines are reflected in the actual management of portfolios. The analysis will also assess the resources available to the manager to effect research, stock/mutual funds selection and asset allocation. It will also assess the objectivity of the research and, if a third party software or asset manager is involved, it will assess their disciplines and resources.
In the case of third party asset managers and service providers, the process in which the advice and recommendations are passed through to the advising firm will also be assessed. Are there conflicts between how the advisor manages and delivers and how the third party intended the recommendations, allocations and management to be delivered?
Performance analysis will focus on four key areas. How well the portfolio performed relative to its structure and to its asset allocation. Did it out or under perform a comparable performance benchmark over the last six months, the last year and since the manager started running the portfolio? Did the portfolio perform in accordance with the manager's stated investment discipline? If the manager is supposed to be a value investor yet the performance and the risk profile of the portfolio is more like that of the market or a growth investor, then it is unlikely they are following their stated investment discipline. Was the performance and the risks (statistical and valuation) of the portfolio in keeping with the manager's stated strategy for the portfolio and appropriate to the client's risk preferences and financial needs? The objectivity and quality of the wealth manager's reporting.
It is important to note that within a disciplined wealth and asset management service the risk assessment process, the portfolio construction, planning and management and the portfolio's actual performance are all related. Poor performance and poor investment discipline will most likely be reflected in poor standards in every aspect of the wealth and asset management service. Additionally, a good service will clearly demonstrate all of the above questions, as will a bad service through its ommission. Under performance is not a crime, it is a fact of life for active managers and, it is not always a sign of a bad manager! If a manager is attempting to out perform the market, reduce risk or provide a higher level of income than the market then you will at times under perform. Under performance is not something that lasts only for a couple of months. It can at times last for years. Good, well disciplined managers are guaranteed to under perform, poor ill disciplined managers will panic and switch styles and strategies at the worst possible moments. Bad managers compound under performance, while disciplined managers will recover. TAMRIS is not here to create a rod for your advisor’s back where under performance is a direct result of a cohesive and structured investment discipline and strategy. There will be times when you are going to under perform and, at those times others will be out performing. Changing asset managers at these times will more often result in greater risks to return. As a general rule it is better to assess a manager's investment discipline, portfolio structure and reporting standards before you agree to a wealth management relationship. | 
