Risk-Adjusted Performance as a Rigorous Approach to Removing Subjectivity from Expert Assessments of Suitability

A broker has an obligation to ensure that his client incorporates suitable assets into his portfolio. Greater objectivity can be brought to assessments of suitability by comparing the performance of the aggrieved investor's portfolio to a benchmark portfolio using the Modigliani & Modigliani risk-adjusted performance measure. The applicable counterfactual benchmark could be either a ``market" portfolio or a suitable alternative portfolio. The calculation of confidence intervals associated with the measured difference in risk-adjusted returns is demonstrated. Castaneda-like standards can be used as criteria for whether defendant's actions negatively impacted portfolio performance rather than outside events.