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4 Questions to Ask About Your Financial Advisor

Questions to Ask Financial Advisor

So far 2012 is off to a fairly mellow start in investment markets – but with just two weeks under our belts there is still a long road ahead. Anyone with an investment portfolio under the management of a financial advisor may be concerned about how the advisor is handling the pressure, and whether he or she is doing the right thing with regard to your assets. Here are four questions to ask that can help shed light on how well your advisor is doing.

 1. Who’s calling whom?

Think about the last few times you spoke with your advisor (or communicated via email or text). Did he or she call you – perhaps during one of those stormy periods during the fourth quarter of last year to reassure you – or did you light up the switchboard with frantic calls that went unanswered for days? A good advisor should not be pestering you all the time – after all you are paying money so that youdon’t have to think about your investments every day. But a good advisor is one who is not afraid to pick up the phone to communicate an important message to you. Advisors who are forthright about bad news are less likely to be hiding even worse news.

 2. Are you getting your reports on time?

Your financial advisor may be in the habit of sending you quarterly and annual statements directly. Or she may delegate that task to whatever firm is providing trading, settlement and custody services (such as Fidelity, Schwab or TD Ameritrade – the leading players in the US market). Either way, you should be receiving these reports on time – within one month of the quarter or year end close. A good advisor may also add a brief letter to these statements providing commentary and a brief analysis of performance. Good advisors look for ways like this to communicate their views and thought process to their clients.

3. Is your advisor rebalancing your portfolio in a disciplined and timely manner?

Rebalancing needs to happen on a regular basis. Your advisor should be doing this at least once every year, regardless of market conditions. Many advisors find rebalancing to be hard. It involves selling off assets that have been doing well and loading up on the ones that have underperformed. The temptation is to try and time the purchases and sales to optimize current capital markets conditions. But over time, such market-timing attempts will hurt you more than they will help.

4. Do you understand your advisor’s strategy?

You hear a lot of talk in the markets that the days of “buy and hold” are over; that it’s a short-term trader’s market now, and so on. What is usually lacking from those conversations on CNBC, and the like, is any kind of compelling argument for how a long-term portfolio can be efficiently and prudently managed by engaging in lots of short-term buying and selling. A good advisor will not sound like one of those cable gasbags, but will have a thoughtful and reasoned investment philosophy, approach, and process that he can communicate clearly to you. Don’t be afraid to ask penetrating questions – or even questions you may think are stupid. Those questions will help you understand what the advisor is doing to cope with the volatile conditions, and why that makes sense.

It’s a two-way street

Advisors need to hear from you as well. You can safely assume that any advisor with more than 20 clients is going to have at least one or two “difficult cases” – who second-guess every short-term decision and always want to “buy high and sell low”. Let your advisor know that you are not one of those – that your interests are focused on your long-term goals and achieving those goals within your own risk tolerance. That will help towards making this very important relationship as productive as possible.


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