September 2016: Hypothetical Portfolio Illustration Tools

Posted on October 04, 2016

Hypothetical illustration tools assist advisors in creating visually impactful presentations that show clients how a preferred investment or portfolio strategy could potentially perform within a given time frame. These tools produce client-ready reports that automatically include appropriate disclosures, adhering to perpetually changing compliance demands. A hypothetical illustration report that is tailored to a client’s risk tolerance and investing needs can provide a strong impression while exemplifying an advisor’s portfolio construction expertise. This report examines hypothetical illustration tools offered by Mutual Fund Monitor – Advisor coverage group firms, offering walkthroughs for how an advisor would use each tool to create performance reports from scratch.

Six coverage group firms—BlackRock, Lord Abbett, MFS, OppenheimerFunds John Hancock and Putnam—license the Morningstar Hypothetical Illustrator for their advisors to use. Five other coverage group firms—American Funds, Franklin Templeton, Invesco, PIMCO and Vanguard—supply their own version of a hypothetical illustration tool. Every firm except American Funds allows advisors to incorporate both in-house and competitor funds into their hypothetical illustration. Although six firms license the Morningstar Hypothetical Illustrator, only versions offered by two firms—OppenheimerFunds and Lord Abbett—currently provide functioning learning centers enabling advisors to watch tutorial videos and access instructional information. Of note, each firm we looked at lets advisors customize report cover pages to include pertinent client and advisor details.