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Build a winning relationship with your advisor

by | May 8, 2016 | SELF-PUBLISHED

What all financial advisors should deliver

When our financial affairs achieve a critical mass, we’re often advised to “talk to a financial planner” or “consult a financial advisor.” But what we’re not told is what to expect when establishing a relationship with someone you hope will competently advise you and manage your investments. There’s lots involved, including that elusive quality of personal “chemistry.” But there are certain minimum criteria you should be looking for when choosing a financial advisor.

  1. Trust

Trust is first and foremost on the list. Your financial advisor will be advising you on all aspects of your financial life. Creating a financial plan to meet your life goals and objectives gets pretty personal, and so a deep level of trust must be implicit in any relationship with a financial advisor.

This becomes especially important in how investment assets are allocated according to your risk tolerance, and which investments are selected. It’s here that investors typically run into problems. A bad investment can drain away a robust asset base very quickly.

So more important than picking individual investments is for the advisor to apply best practices to asset allocation. Research has shown that up to 95% of investment return is a result of proper asset allocation. That means appropriate diversification across a range of asset classes, risk-mitigation strategies, and continual monitoring and reporting on portfolio performance. Financial advice is definitely not just a matter of picking the most recent hot stock or sector. It’s a matter of creating a meticulous long-term plan that can withstand the vagaries of the market to achieve your longer-term goals.

  1. Transparency

Your advisor should provide you with a report that clearly and fully outlines the asset allocation methodology that will be used in your portfolio. Often, this is called the “Investment Policy Statement.” It should outline your asset mix objectives, based on the adviser’s assessment of your true risk tolerance, your return objectives, any special investment restrictions or constraints you might have, and your time horizon.

If you don’t get such a report, or if your potential adviser serves something up scribbled on the back of an envelope, it would be prudent to strike that person off your list of candidates and go on to the next one. Even worse, hints or tips about “really hot investment opportunities that only a few people know about” are usually a red flag, and a warning that you’re about to be taken for a ride…to the cleaners.

  1. Expertise and independence

Your adviser should be completely forthright in disclosing his or her credentials, affiliations, and experience. He or she absolutely must have access to top-flight investment research and should be willing to explain in detail who provides that research. In addition, your advisor should also have access to a wide range of investment choices, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs), accredited investments (those available only to investors with deep pockets), private pools, and so on.

An adviser who offers products from only one company is essentially a salesperson for that company, regardless of how impressive their other credentials might be. No single company always has the best product in all categories. It makes more sense to use an adviser who has no particular bias for one product in their selection methodology.

  1. Compensation

Your advisor must be absolutely upfront about how he or she is paid. An agreed percentage of annual assets under management is a common approach. But some advisors will tack on various charges, trailer fees, commissions, administrative fees, transaction costs, or “performance bonuses” in a contract. Always ask your adviser to disclose whether they have any hidden costs, charges, or commissions. And be sure to read any contract thoroughly before signing. Ask the advisor or an independent third party to clarify anything you don’t understand.

© 2016 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.

© 2023 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.

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