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Is your financial advisor a bum
or a shining star? Read on and I’ll show you a simple way to
find out!
I often see people fail to properly manage their
relationship with their investment advisor. Your opinion of
your advisor should be based on an objective standard such
as the performance of your investments instead of a
subjective standard like “He’s so nice.”
Would you continue to go to the same dentist if your teeth
started falling out? No. Would you have the same person mow
your yard if they always missed spots and let it grow to
your knees before they mowed it? Probably not--unless you
were using it for hay!
Then apply the same objective standard to your financial
advisor. Your opinion of them should be based on the
performance of the investments they recommend, not on their
personality. You can easily invest in what are called “index
funds” on your own. And it costs you very little. So doesn’t
it make sense that you would only want to pay for an advisor
if they consistently did better than what you could do on
your own?
Unbelievable, 70-80% of the people I meet with would have
done better investing on their own than with their current
advisor!
So the question is, if you are currently using an advisor,
how did he or she do compared to what you could have done on
your own? Most of you have no idea because your advisor
won’t tell you! Most advisors don’t want you to know.
If you work with a professional advisor you should sit down
with them and decide on a standard, a benchmark that will be
used to measure their performance. Then you should expect
(or demand) your advisor to give you a quarterly report that
clearly shows you how much you paid in commissions and fees,
the performance of your portfolio in percentage terms and
the performance of the benchmark.
That way you get to see in clear black and white what
happened with your money. It allows you to objectively
measure how good or bad your advisor is doing. By the way,
most likely your advisor doesn’t currently give you this
kind of a report. They may not even have access to one. If
that’s the case, it may be an indication of the quality of
your advisor or their recommendations.
John and Belinda found this out the hard way. They had been
faithfully putting money away each year for retirement,
following the advice of some ‘professional’. Come to find
out, the performance of their investment was terrible. Over
80% of other similar investments consistently did better
than theirs!
They thought their ‘professional’ was doing a good job
because she was so friendly and seemed to know what she was
doing. John and Belinda failed to measure the performance of
the advisor’s recommendations against an objective standard.
If they had they could have retired years sooner.
Can you see how having that kind of an objective standard
puts you in control? You won’t have to wonder how good your
advisor is. You won’t have to base your view of them on a
subjective opinion. More importantly, it will let you know
whether or not you are on track to reach your goals. I
provide a report like this to my clients and they love it.
If your current advisor isn’t using a benchmark to measure
his or her performance, I would set an appointment and ask
them flat out, “How has my account performed as compared to
the industry benchmark?” Demand a IMRA-compliant report that
provides return information on your specific account. If
they aren’t holding themselves to some kind of standard,
maybe you should consider finding a new advisor who will.
Remember: it’s your money. Don’t just assume your advisor is
doing a good job for you. Make them prove it. It’s a great
way to find out if you are working with a bum or a shining
star.
For free, clear, unbiased answers to your financial
questions send me an email or give me a call.
Mr. Voudrie is a Certified Financial Planner, nationally
syndicated newspaper columnist, holder of 4 financial
related Patents-Pending, and President of Legacy Planning
Group, Inc., a Private Wealth Management Firm in Johnson
City, TN. He can be reached toll-free at 1-877-827-1463 or
at
jeff@guardingyourwealth.com. |
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