Enhanced practice management: Client risk and the case for active-passive combinations

Feburary 13, 2018

 

Advisors shifting to a fee-based model have a heightened awareness of client risk. Even for long-term investors, short- or intermediate-term underperformance can lead clients to question your strategy, withdraw their assets, and withhold referrals.

Adding broad-based, passively managed investments to a portfolio primarily comprising actively managed funds can help shrink performance distribution and dampen client concerns. This research note explains how.

Use this paper to:

  • Review active funds' performance over two five-year periods (2007–2011 and 2012–2016) and how a majority of active funds failed to outperform their stated benchmarks.
  • Analyze how active funds' degree of performance dispersion can lead to client risk.
  • Examine how adding a diversified passive index fund or ETF to a portfolio of active funds can affect performance and downside risk.

For more on building relationships in the new advice landscape, read The evolution of Vanguard Advisor’s Alpha®: From portfolios to people.

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Note:

  • All investing is subject to risk, including possible loss of principal.

 

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