Given the rollercoaster impact of volatile markets and the need to pay attention to what’s happening to your investments and financial plan, clearly understanding the impact of your advisor’s scope of advice and deliverables is critical. Emotions play a large part of how people select and interact with their advisor. For example, the fear of loss is a more impactful influence on behavior than potential gain. An investor may be wishfully thinking something to be true, even without evidence, lacking objectivity, which is a condition called cognitive bias. Several prospects we’ve talked to recently have just come to the realization that their performance from their current advisor has been flat over several years despite the decent returns from most indices. They unfortunately sat idly by and after 4-5 years had elapsed, woke up to the reality that they virtually achieved no net gains on their portfolio. An investor may assume they’re doing ok, are properly protected from all the crazy volatility or their financial plan is relevant in today’s environment, or that their financial professionals, financial advisor, CPA, attorney, are collaborating together on their behalf.
So, its always a good idea to trust, but verify when it comes to placing your life savings and future financial plans for your family in the hands of another professional. Another potential pitfall is doing business with friends, where having candid conversations can be awkward. Does your advisor have permission to tell you what you need to hear vs. what you want to hear? Astute and pointed questions can give you the confidence that they are: A. Looking out for your best interests and B. They have the skills, experience and competencies to guide you on the path to the life you’ve always dreamed of living. Don’t let false assumptions get in the way of ensuring your financial issues are squared away.
Here are the five top questions to ask your financial advisor…
- How is my current portfolio’s asset allocation aligned with my stated investment objectives and risk tolerance? Also, how often do you rebalance my account(s)? Do they have permission to tell you what you need to hear vs. what you want to hear?
- Where can we see the net percentage returns on our portfolio for the last twelve months, last three years and annualized since inception? How do those compare with our desired returns?
- What steps are you taking to proactively reduce income taxes (on my taxable assets) to minimize taxable dividend, interest and capital gains?
- How exactly are my fees or expenses calculated and where can I see them on my statement?
- What kind of communication is occurring between you, my tax professional, my insurance agent and my estate attorney?
- Bonus Question: Do you provide holistic financial planning services that help us set time specific financial goals and monitor our progress?
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. It is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Diversification and asset allocation do not ensure a profit or protect against a loss.