Performance Measurements Evaluate Financial Plan & Investment Policy Statement
The creation of milestones or guideposts is essential for the financial plan or investment policy statement to establish expectations and methods for measuring progress towards your stated financial goals. Financial industry standards do not require an ability to predict future financial outcomes, but it is important to demonstrate that the investment strategy is based on realistic performance measurements. The identification of performance measurements serves various purposes including:
- Investment Strategy Considerations;
- Important Component of Investment Policy Statement; and
- Establish Benchmarks to Monitor Progress.
The development of the performance measurements is an integral part of the relationship between a client and its financial advisor. The client must understand the goals which have been established, in light of how the goal is to be reached and how performance is to be measured. Performance measurements should communicate the criteria upon which the financial plan and investment policy statements should be evaluated. The performance measurements should be:
- Specific – Tells you precisely what, when and how;
- Measurable – Stated in terms of quantity, timeliness and cost;
- Attainable – Provides an objective that is reasonably obtainable;
- Results Oriented – Conforming with client goals; and
- Time Frame – Beginning and end with specific milestones defined.
Client must understand and agree with how the efforts of all decision-makers are to be measured and evaluated. Most financial goals have target dates over extended periods of time. How the progress is to be measured is an essential part keeping on course towards your True North.
