Your advisor promised to help you meet your financial goals. In the beginning of your relationship, the phone calls and meetings were frequent, but in the past couple of years as the market and your portfolio decreased, you havent heard from your advisor. Maybe, you gave them instructions to sell certain investments and they have refused to or else forget to do so. Now, perhaps the only time they contact you is when they are trying to sell you a product. Are you tired of conflicts of interest your advisor and/or his or her firm has when providing you with advice? Do you enjoy hearing that your brokerage firm recommended stocks that they underwrote that were extremely overrated or now the brokerage firms executives were taking kickbacks or making preferential deals for their executives and for their better clients?
Incompetence is also a disease that affects ones net worth. If your stockbroker or advisor is from a brokerage firm or a bank, have they recommended only their firms mutual funds (a large conflict of interest)? Perhaps a few years ago they recommended very expensive growth type stocks and kept telling you to hold on as the market continued to drop (a sign that they dont understand investing fundamentals). Do they explain to you in detail investing issues such as asset class and market valuations, what interest rates are doing and what legendary investors such as Warren Buffett and Bill Gross are saying? Or are they just saying buy and hold. If the later is true without mention of the former, then it is probably the sign of an unsophisticated advisor. The same would be true of someone whose only answer is to place your money with a money manager, also known as a private manager or separate account managers.
Lets discuss performance for a moment as well. If your portfolio dropped 20% or more from the beginning of 2000 to the end of 2003, you had a poorly constructed portfolio. While most advisors lost some monies, a loss exceeding 20% was excessive.
Advisors who recommend mutual funds from only one mutual fund family or sells only variable annuities, lack sophistication. No single mutual fund family or annuity can provide all the solutions. Most fund families are not good at everything. Even the larger more well known names, specialize in certain types of funds.
Even worse than incompetence or limited product offerings, are advisors who are out for the quick kill when it comes to their compensation. They only recommend products that are highly commissionable.
Here are examples of sure signs an advisor is mostly product sales focused:
- They recommend only insurance products or have recommended buying annuities inside IRAs and other retirement plan accounts.
- Their recommended products have back-end surrender charges.
- A, B, C or D share mutual funds are the only ones being recommended.
Any of the reasons mentioned in this article are good ones for finding a new advisor. The best solution is to find a financial advisor who is competent and trustworthy, one on whom you can depend for professional advice and who is eager to have frequent contact with you.
Next month: How To Find A Great Financial Advisor!
There are numerous ways to evaluate an advisor. Make a list of the criteria you require in an advisor. The criteria can include; professional investment and financial planning experience, investment performance, compensation structure, credentials, frequency of contact and willingness to develop a long-term fulfilling relationship for both parties. Furthermore, does your advisor have investment research capabilities, using such computer software programs as Bloomberg and Morningstar to analyze private equities and mutual funds?
Evaluate your advisor by asking yourself the following questions. Does your advisor contact you less than monthly? Does it take more than 24 to 48 hours to return your phone call? Is your advisor employed at a full service brokerage firm (In other words they are fraught with conflicts of interest)? Is your advisor a bank that primarily recommends its own products and lacks imagination (by recommending only large U.S. stocks and/or bonds) when it comes to managing your portfolio? Does your advisor provide investment tax planning as well as the cost basis on your securities in addition to the investment gains and losses to report on your income tax return as a routine part of their service?
Furthermore, does your advisor provide you with comprehensive financial planning services, such as income tax planning and projections, education funding planning, retirement planning, survivor planning, employee stock option analysis, estate plan document reviews and if applicable, philanthropic guidance. Does your advisor perform analysis of all your property and casualty (auto, homeowners and umbrella liability) insurance? If the answer to most or all of these questions is no, then you need to rethink your relationship and begin searching for a new financial advisor.
For further information, contact Diane M. Pearson, CFPÔ at (412) 635-9210 or e-mail her at firstname.lastname@example.org.