Last year was a challenging year for investors, to say the least. The overall stock was on the cusp of a bear market, declining close to 18%. Unfortunately, the bond market did not do much better and was down almost 13%. Good financial management demands that you periodically review and monitor both your portfolio performance and advisor relationship. The beginning of the calendar year is a logical time for this review. When evaluating your advisor, consider these 5 points:
- Advisor status as a fiduciary. In the financial advice world, a fiduciary advisor is someone ethically and legally bound to always act in the best interest of the client. Shockingly, only about 15% of advisors are legal fiduciaries. Non fiduciary advisors, also shockingly, are not required to act in the best interest of the client. The best way to find out if your advisor is a fiduciary is to ask them, in writing, and expect a response in writing. You are looking for an unequivocal ‘Yes’ response to this question. All Certified Financial Planner™ professionals (CFP® professionals) are fiduciaries.
- Compensation method. Ideally, your advisor is a ‘fee-only’ advisor, meaning there are no sales commissions. This method best removes conflicts of interest. If you are not sure how your advisor is being paid, ask them if they ever receive sales commissions (again, best asked and received in writing).
- Advisor communication. Particularly during difficult markets, advisors should be proactively reaching out to their clients, helping calm their fears and anxiety.
- Advisor responsiveness. I was at a charity event and sat at a table with an older gentleman who told me his advisor had not called or written to him since he had opened his account several years ago. Worse, his advisor never returned phone calls. This is a clear sign that it is time to change advisors.
- Investment performance. Did your investment performance for last year make sense to you, considering your expectations of returns and risks as explained by your financial advisor?
If you decide it is time to explore other options, where should you go? One choice is to ask for referrals from other trusted advisors, such as your CPA. Or visit the CFP Board website and meet with several CFP® professionals near you. Their website is www.CFP.net. If you are interested in working with a fee-only financial advisor, let (“Are you a fee-only financial advisor?”) be your first question before scheduling a complimentary visit with a firm.
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Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of Success; J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
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