Your advisor promised to help you meet your financial goals.
In the beginning of your relationship, the phone calls and
meetings were frequent, but in the past couple of years as the
market and your portfolio decreased, you haven’t heard from
your advisor. Maybe, you gave them instructions to sell certain
investments and they have refused to or else forget to do so.
Now, perhaps the only time they contact you is when they are
trying to sell you a product. Are you tired of conflicts of
interest your advisor and/or his or her firm has when providing
you with advice? Do you enjoy hearing that your brokerage firm
recommended stocks that they underwrote, that were extremely
overrated or now the brokerage firm’s executives were taking
kickbacks or making preferential deals for their executives and
for their better clients?
Incompetence is also a disease that affects one’s net
worth. If your stockbroker or advisor is from a brokerage firm
or a bank, have they recommended only their firm’s mutual
funds (a large conflict of interest)? Perhaps a few years ago
they recommended very expensive growth type stocks and kept
telling you to hold on as the market continued to drop (a sign
that they don’t understand investing fundamentals). Do they
explain to you in detail investing issues such as asset class
and market valuations, what interest rates are doing and what
legendary investors such as Warren Buffett and Bill Gross are
saying? Or are they just saying buy and hold. If the latter is
true without mention of the former, then it is probably the sign
of an unsophisticated advisor. The same would be true of someone
whose only answer is to place your money with a money manager,
also known as a private manager or separate account managers.
Let’s discuss performance for a moment as well. If your
portfolio dropped 20% or more from the beginning of 2000 to the
end of 2003, you had a poorly constructed portfolio. While most
advisors lost some monies, a loss exceeding 20% was excessive.
Advisors who recommend mutual funds from only one mutual fund
family or sells only variable annuities, lack sophistication. No
single mutual fund family or annuity can provide all the
solutions. Most fund families are not good at everything. Even
the larger more well known names, specialize in certain types of
funds.
Even worse than incompetence or limited product offerings,
are advisors who are out for the quick kill when it comes to
their compensation. They only recommend products that are highly
commissionable. Here are examples of sure signs an advisor is
mostly product sales focused:
- They recommend only insurance products or have recommended
buying annuities inside IRAs and other retirement plan
accounts.
- Their recommended products have back-end surrender
charges.
- A, B, C or D share mutual funds are the only ones being
recommended.
Any of the reasons mentioned in this article are good ones
for finding a new advisor. The best solution is to find a
financial advisor who is competent and trustworthy, one on whom
you can depend for professional advice and who is eager to have
frequent contact with you.
Next month: How To Find A Great Financial Advisor!
