If you feel you can answer these questions confidently than you are most likely in great shape! If not, it may be time to reevaluate your advisor.
1. Buy and hold investment philosophy
Does your advisor recommend buy and hold?
Last two bear markets
2008 S&P 500 declined -44.7% and lasted 2.1 years
2000 S&P 500 declined -50.9% and lasted 1.3 years
How bad will the next bear market be? Did you know, if the market declined -33.3% it would take a 50% gain just to break even. While buy and hold may work for some, it might not be for you depending on your own personal situation such as age and short term cash needs.
2. Compensation
How much are you paying? Advisor fees? Internal expenses?
If you are spending your hard-earned money, you should know where it’s going. Everything should be transparent with your financial advisor. Ask your advisor about his fees and the internal expense on the funds he recommends. You should have a clear understanding of how much you are paying your advisor.
3. When can you retire?
Does your advisor create a big picture plan that allows you to visually see an appropriate retirement age?
Retirement is one of the most common goals a client needs guidance with. Clients should have a clear understanding of an appropriate retirement age and how different financial decisions will affect their plans. Does your advisor give you an estimate for when you can retire comfortably based on your asset level and living expenses when you retire?
4. Education
What educational background does your advisor have?
Would you prefer a teacher with a music degree teaching your kids math? I don’t think so. Education background is important. Although it’s possible to be a successful advisor with other degrees, in my opinion, I would prefer someone with a finance background to manage my finances.
5. No Contact
When’s the last time your advisor contacted you?
People’s finances are constantly changing. It could be a new house, car, college fund, retirement, ect. If your advisor hasn’t contacted you, how would they know to adjust your plan?
6. Independent
Are you buying mutual funds or ETFs from all the same company?
Being an independent advisor is great because it allows you the flexibility to choose from all different fund companies and not be married to one specific fund company. I like to compare it to being only allowed to drive BMWs. Yes, BMWs are great cars but you should be able to see what is the very best car for your money whether it be BMW, Audi, Mercedes, Ford, ect. Your advisor should buy mutual funds or ETFs that are most appropriate for you, not the funds that give them the highest compensation.
7. Questionable Background
Have you background checked your advisor?
Clients can check the background of their advisor for free. For investment advisors check https://www.adviserinfo.sec.gov/ and broker dealers check https://brokercheck.finra.org/. Even infamous names like “Jordan Belfort” from the Wolf of Wall Street are listed there. This is a free resource that lets you background check your advisor.
Definitions
Bear market is when an index closes at least 20% down from previous high
S&P 500 index investors use as a benchmark for overall market performance
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
