Your relationship with your financial advisor is often long standing and personal. I get it. Your family has worked with this advisor for years. Your financial advisor knows you, knows your family and most importantly, “YOU LIKE THEM.”
Liking your financial advisor is wonderful – you should have an amazing professional relationship. I would also argue that liking your financial advisor can also be dangerous. Now, when I say “dangerous,” I don’t mean a four-alarm kind of dangerous. What I mean is, your financial advisor may have become overly comfortable and complacent in your professional relationship. You may not be getting the level of service and expertise out of your financial advisor that you need to further meet your financial goals and objectives. So, how do you know if you have outgrown your financial advisor?
When to Fire Your Financial Advisor
Your review meetings with your financial advisor seem more like two high school buddies catching up
Your financial advisor should be prepared. While the meeting should be comfortable, there should be a formal agenda that lists the points that will be discussed. And the most important points on this agenda should be: What is on your mind? What would you like to discuss?
They’re not a fiduciary
“Fiduciary” is one of the most important words to know as an investor and “Are you a fiduciary?” is one of the most important questions to ask your financial advisor. Why? If your financial advisor is a fiduciary, they are legally obligated to always act in your best interest.
Now, you may be thinking to yourself, “Doesn’t every financial advisor have to be a fiduciary?” Surprisingly, that answer is “No.” Many financial advisors operate under “suitability standards,” not “fiduciary standards.”
Operating under a “suitability standard” means a financial advisor only needs reasonable belief that an investment is a good fit for a client. The advice or recommendations are not legally required to be in the client’s best interest. This is downright scary and an unnecessary risk for an investor.
Your financial advisor is a statistics spouter
Have you ever wondered why your financial advisor picks certain investments for you to invest in? Well, I want you to ask them. If the answer is something like:
- “This is a good fund.”
- “The dividend is attractive.”
- “The PE ratio and beta relative to the market is compelling.”
- “This investment has worked well for our clients.”
I want you to pause. While statistics are important, they should be explained to you in an easy to understand way. Your financial advisor should also be able to explain how statistics fit in with your overall wealth management plan. Ask your advisor the following questions:
- “How does this investment fit with what I am trying to accomplish?”
- “How does this investment fit with my risk tolerance?”
- “Tell me why we are utilizing this investment and how it will benefit me.”
- “Would you translate the statistics and industry jargon?”
Interactive financial modeling is not offered
Now, I’m not talking about the beautiful financial plan that comes in a bound book with different tabs that almost appears encyclopedia like. Your financial advisor hands you this like it is a gold bar, while in your mind, you know that it is going on the shelf never to be looked at after today. Not to mention, you’ve likely paid a separate fee for this work of art.
Your financial advisor should be modeling scenarios customized to your financial goals. This should be done during your meetings, on a digital screen or tv, where you can make on-the-spot changes and see how these changes would affect your financial outcome. To give you an example, some of the scenarios that we, at The Prosperity Consulting Group, typically model include:
- Am I on track to retire? Will I run out of money?
- Can I retire early? If so, how many years early?
- What should my divorce settlement look like, so I can keep my standard of living? How much alimony do I need to ask for? Can I afford to keep the house?
- How are taxes and rising health care costs going to affect me?
- Can I buy a vacation home?
- Should I downsize? What would that look like financially?
Don’t dismiss the importance of financial modeling. This is not only for those you have deemed “wealthy.” If you ever plan on retiring, you must have a plan. Like the old saying goes, “Fail to plan, plan to fail.” Most importantly, this should be reviewed annually to confirm that you are correctly tracking toward your long-term goals and objectives.
Your financial advisor can’t offer tax advice
Most financial advisors are not accountants, but they should have a CPA or two on their team. Why is this important? Because taxes can erode portfolio returns.
At the very least, confirm that your financial advisor is active with managing capital gain distributions and uses asset location to minimize taxes.
Your financial advisor uses dinosaur technology
You likely have a HD smart TV, energy efficient appliances, LED lightbulbs and camera doorbells in your home. Why would you tolerate anything less than the most sophisticated financial planning software as you track toward financial goals? It’s time to fire your financial advisor when their technology cannot keep pace with your changing needs and goals. It’s very important for your financial advisor to utilize and offer the following to you in terms of technology:
- Secure portal to upload files, data and information (say goodbye to email transmission of documents)
- Financial modeling software that compares and helps you visually see the pros and cons and impact of the financial decisions you are considering
- Software that allows you to link all your accounts and provides an updated financial statement daily
- Vault to store important papers and documents
- Software for analyzing and screening mutual funds so you are confident that the best fund recommendations are presented to you
- Stock screening software
- Portfolio analyzing software, so you can look at your account in various ways
- Performance reports that show exactly how much money you have deposited, withdrawn and made over the years
Your financial advisor lacks transparency
Have you ever wondered how your financial advisor is compensated or how much money she makes from you? If you just answered “YES” then please ask. If you must, power pose like Wonder Woman, with your hands on your hips (it is said to boost confidence), and ask:
- “Are you commission or salary?”
- “What is the management fee?”
- “What are the fees associated when working with you? (Are there stock and fund ticket charges? Are there extra account fees?)”
- “Besides the fees that I know about, what are my hidden investment fees? (These fees may be hidden inside of investments.)”
Remember, your financial advisor works for you. You are the boss. If you feel that you have outgrown your financial advisor and are ready to interview future financial advisors, the Certified Financial Planning Board is a great resource. And, please always feel free to contact me below. Here’s to your success.
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