5 Things to Ask your Advisor at Your Next Meeting
Since I’ve started in this business I’ve said that every investor should know the following:
- Know What Investments You Own
- Know Why You Own Them
- Know What You Pay
- How Did I compare Against My Index?
- What’re Your Thoughts on the Markets Moving Forward?
What do I own?
You should be receiving monthly or at least quarterly statements that above all else should have a list of what investments you own. Now there are several different ways to invest from individual stocks and bonds (my preferred method) to mutual funds, ETFs Closed End Funds or the dreaded annuity. Although these investments all ultimately invest in stocks and bonds, each of these investment vehicles has pros and cons, but until you know what you own you can’t ask the next more compelling questions:
Why do I own these investments?
There should/could be several compelling reasons that your portfolio holds the investments that it does, however this question should be one that is answered quickly with conviction. Your investment strategy can be part of an efficient investment process that is used across the advisor’s book of business, however it should be distinct to you. Such as, “I am trying to diversify you into this specific area that’s why we own this ETF etc.” Whatever the answer is, it should come quickly as this strategy although yours should be part of a bigger theme that the advisor uses.
What do I pay?
Here is where a lot of people don’t ask and find themselves years later wondering why they didn’t ask this question earlier. Unfortunately, in my opinion the financial services industry is still not transparent enough in how it discloses fees. And by sending a client 87 pages of disclosures, you’re not being transparent. I can’t imagine anyone reads all those pages, and even if they did the chances of them understanding it would be slim.
If your advisor charges you a fee to manage your account, that’s perfectly legitimate. First you need to know what it is, and second, if you own mutual funds or ETFs inside this managed account then you should ask what the fee inside those funds is. These two figures will tell you what you pay in total.
How did I compare against my index?
So perhaps if you don’t already know you should ask, what index do you compare my portfolio against? I’ve written a lot about this. You should be measuring your performance against something rather than an arbitrary number. The market giveth and the market taketh away, however history tells us that over the long run the bias is typically upwards, that’s why we invest. A 5% return might sound good for one quarter, however if the index returned 7% then you underperformed. You need to get the good with the bad to get the average….Determine what your benchmark is and measure yourself against it every quarter.
What’re your thoughts about the market moving forward?
Whether your advisor is a bull or bear, optimist or pessimist, half full or half empty, they should have an opinion. Over the long run, if they stay disciplined to the investment strategy they have selected for you, then what they think is no more relevant that the Uber driver’s. However, their job as advisors is to not only invest your funds appropriately, but to educate you on the process. You should be receiving emails on the disciplines of investing, current events moving the markets and how that affects your portfolio, information that helps give you confidence because your guy is on top of it.
This relationship should not feel like you’ve been sold something, it should be an ongoing educational process, where you feel like each time you meet with your advisor you know a little more than you did last time. The questions I receive from my long-term clients are so well thought out and specific, and I like to think that’s because they know my current thinking and have listened to me regurgitate disciplined investment principles for many years.
It’s your money and we work for you. Make sure you’re getting value from the relationship, above the dollars and cents.
Any opinions are those of Mick Graham and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
