Three investors on the same day asked me if it is reasonable for them to expect their financial advisors to “beat” the performance of the securities markets.

The best answer I could give them was it depends on what they were sold. If advisors convinced them to pay higher fees on the basis the performance of their assets would beat the market, then that should be their expectation. On the other hand, if their advisors charged lower fees on the basis the performance of their assets would match the market, then that should be their expectation.

As you may have already figured out, my response to this question is complicated by what the investors were sold (their expectations), the amount fees they pay for the advice and services that produce their performance, and their actual results before and after fees are deducted.

My totally candid response was very few advisors beat the market because no one can reliably predict the future performance of the market and which investments (securities, mutual funds, hedge funds) will perform the best. The performance issue is further complicated by the amount of expenses that are deducted from investor accounts.

Advisors and Wall Street make more money if they can convince investors they have a crystal ball that enables them to predict the best investments. However, advisors do not have accurate crystal balls. Consequently, less ethical advisors use relationship and sales skills to create high expectations that justify the high fees that they charge for their time, advice, and services.

This is a major problem because investors want to beat the market. They are fertile ground for advisors who promise high returns to gain control of their assets.