The Inside Baseball On Providing Valuable But Sophisticated Data Visually So Clients Understand Their Wealth Management Journey
The Major League Baseball playoffs are underway, much to the delight of millions across the country. Were you to tune into any game over the next few weeks, you’re increasingly likely to hear the announcers talk about things like wins above replacement (WAR), on-base plus slugging percentage (OPS) or even weighted runs created plus (wRC+).
Adherents to so-called advanced analytics are delighted to see more of the public embrace these types of data points, which they say give additional meaning and context to games and allow fans to appreciate the true value of each player. Still, some fans haven’t been as quick to embrace the ongoing data revolution.
They don’t care – or even want to know – what some of these new-fangled terms mean. What’s more, they chafe at the implication that their way of looking at things is wrong.
Your clients can feel the same way whenever they confront unfamiliar jargon about their investments. Therefore, you must balance the desire to provide them with more data-rich insights and analytics with ensuring the information is relevant to their needs and, importantly, easy to understand. This is where a good technology platform can be the solution.
A Second Look
Before getting to that, let’s get back to baseball for a moment. For over 100 years, having a high batting average and putting the ball in play were synonymous with value. Conversely, anyone who hit for a low average and struck out a lot was barely worth a roster spot.
But in time, batting average has become less and less important. The reason is that it reveals very little, by itself, about how productive a player is.
For example, let’s say a player has a .325 batting average. In most recent years, that would lead the league and land them on the all-star team. Sounds great, right?
But assume for a second most of their hits are singles with the bases empty. Do they really create more value than another player whose average is 90 points lower but has a significantly higher OPS, which suggests that even though they had fewer hits, the ones they did have were far more impactful? The easy answer is no.
Much like batting average, some traditional metrics used to evaluate and predict portfolio performance are similarly flawed. One example is volatility.
The term gets tossed around a lot when markets go through periods of ups and downs, almost as if it’s purely an adjective. But it has statistical roots, measuring the extent to which the price of an asset varies over time.
Though that sounds simple, the problem is that it doesn’t differentiate between underperformance and overperformance. Since most investors are not likely to get too alarmed if one of their investments does better than expected for an extended period, that’s an issue.
In fact, in some cases investors need more volatility to reduce the risk of not achieving their financial goals. This, in part, is why terms and concepts like risk adjusted returns, factor attribution and goals-based analytics are gaining more traction within the investment community.
For our purposes here, it doesn’t matter what these terms mean. The larger point is that they, along with many others, can help investors navigate the constant tug-o-war between risk and return. Yet, because these concepts are not well understood, if you stumble when trying to introduce them to a client, it could end up doing more harm than good.
The better approach is to arm yourself with tech that makes easy-to-follow graphs, charts, diagrams and other forms of visual stimulation the foundation of its client-facing offering. That way, you can communicate the importance of relevant concepts without ever having to say words like “factor attribution.”
Nearly two-thirds of the general population are visual learners. Your clients are no different. Therefore, visuals, via a single click of a mouse, are far likelier to facilitate an intuitive understanding of their wealth management journey better than any amount of words or numbers ever could.
Want to show a client how an overlay strategy could impact their risk-adjusted performance? To paraphrase the famous Apple commercial, there should be a chart for that. What about demonstrating how taking on more (or less) risk will affect their ability to reach their goals? You need a chart for that, too. We could go on and on.
Clients are human. Some of them will embrace new ideas and thrive because of it. Others, though, could have a different instinctual reaction – especially when money is involved.
They may become paralyzed or even afraid, thinking, like the longtime baseball fan who doesn’t want to hear anything about wRC+, “This is new. I don’t like it. What’s wrong with what I’ve always done?”
A good tech platform can make all this a moot point by letting complex data come alive through visuals – which enables clients to process data how they want to and allows advisors to focus on service, not trying to teach a master’s level statistics class.