Feb
06
Should You Change Financial Advisors?

The "Groundhog Day" stock market correction has lots of investors casting a wary eye on CNBC wondering if this is the beginning of another major market decline. In just two trading days (FEB 2 & 5) the Dow Jones declined roughly 1500 points or about 8%. While we would urge investors to remain disciplined and not sell in a panic, it may be an appropriate time to reassess the value you receive from your financial advisor.

If you're like most people, it takes a substantial nudge to get you to change an existing business relationship. This is especially true of one's financial advisor. Most people equate satisfactory service with the growth of their account. The market's tailwind of the last 9 years makes that a very low bar - if you haven't seen significant growth in your portfolio, you simply haven't been in the stock market.

A rising tide lifts all boats. As Warren Buffett famously remarked, it's only when the tide goes out (and the market declines) that we discover who is swimming naked.

We would contend a financial advisor adds far more value through comprehensive financial planning than through portfolio management. Here are a few quesitons to ask yourself to assess whether you are truly getting value form your financial advisor:

  • Do you have a written Investment Policy Statement (IPS) that clearly outlines your stock and bond allocations? Does your advisor rebalance your portfolio periodically to maintain the stated allocation?
  • Does your advisor report performance of relevant benchmarks (like the S&P 500 index) alongside the actual performance of your account?
  • Do you know how much you paid your advisor last year? Do you also incur mutual fund fees? If so, how much?
  • Do you have a thoughtfully conceived and annually reviewed financial plan that covers retirement planning (and progress toward that goal), estate planning, income tax review, risk management and various other financial planning items?

We believe a thorough, well-designed financial plan is the centerpiece of all our client relationships. The investment portfolio, while important, serves the financial plan, not the other way around. If your advisor isn't providing financial planning, it's time to consider a change.