Low turnover more important than performance: Vanguard

Financial advisers need to stop clients churning assets quickly if they want to build their wealth, according to US Vanguard Investments senior investment analyst Don Bennyhoff.

Speaking at the Vanguard roadshow in Melbourne, Bennyhoff said that relying on accepted measures like P/E ratios or GDP growth to indicate where clients should invest doesn't always translate to higher returns, and instead advisers need to minimise their clients' turnover of assets.

"If you're constantly chased out by the bad markets, or you're constantly chipping your portfolio after the fact, you're going to hurt your returns," he said.

Financial advisers should be focusing on what they can control, like portfolio choices, rather than what the best stock to buy is, he said.

Who a financial adviser chooses for active management is also critical to business models and the value they deliver to a client, Bennyhoff said.

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If financial advisers are going to re-evaluate their value proposition and switch from outperformance to delivering better performance to a client, they have to focus on asset retention, he said,

Minimising client turnover of assets is paramount to that goal, he said.

Many clients lack the professional stewardship and discipline that an adviser brings to the table, Bennyhoff said.

Spending time on investment research doesn't provide nearly as much performance value as the industry thinks it does, he said.

Advisers should be spending their time getting to know their clients and building trust with them instead, he added.