On the surface, it may seem straightforward in how these calculations are developed however, in practice, there are often many areas and methods that are not as understood, and can become a source of confusion as advisors select a method for providing this critical information to clients, regulators, and other industry bodies such as GIPS. While it may seem straightforward in determining the ups and downs of a portfolio, there are actually quite a bit of assumptions and factors that take into consideration time periods, account values, and especially deposits and withdrawals, in addition to the actual performance of the underlying investments in a portfolio.
As one of the more common processes developed in advisory firms, there is a high level of interest by both advisors and clients in how investment performance is actually calculated.
