Evaluating Your Adviser's Performance
From The Truth About Money, Part XIII – How to Choose a Financial Adviser.
Too often, consumers hire an adviser without giving any consideration to the quality of their selection. Even when you carefully choose an adviser, complacency (or merely inertia) can set in. As a result, many consumers fail to evaluate their adviser.
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Here are the eight categories you should consider when evaluating your adviser:
Category #1: Your relationship.
Do you feel comfortable talking with your adviser? Do you look forward to conversations, and when done, are you happy to have had the conversation?
Category #2: Services provided.
Is your adviser delivering services that are of value to you? Think of all the services you get, and ask if you'd be unhappy if any of them ceased. If you wouldn't miss them, they aren't of value.
Also think of services you'd like to receive but aren't currently receiving. Have you asked your adviser to provide them?
Category #3: Investment performance.
Are your returns competitive, based on your goals, risk tolerance, and personal situation? You should have a benchmark relevant to your situation for comparison purposes; your adviser can provide one for you.
Category #4: Investment risks.
Has your account fluctuated in value beyond your comfort level? If so, have you discussed this with your advisor, and are you satisfied with the results of that conversation (i.e. your investments were changed to better reflect your comfort level, or your advisor's explanation made you more comfortable with the level of volatility you're experiencing)?
Category #5: Outlook.
In times of economic volatility, is your adviser still equipped to effectively advise you? Has your adviser kept you up-to-date on his thoughts and perspective? Is your portfolio still properly positioned?
If your adviser has been making or suggesting major changes in your investments, he may have lost confidence in his prior advice — rendering suspect the confidence you can place in his current advice.
Even worse would be an adviser who does not seem able to articulate an effective, cohesive strategy going forward. And worst of all would be an adviser who has been and continues to be completely silent — no calls, no emails, no letters, no contact, and no responses to yours.
Category #6: Team-based or solo?
There is a lot of value in team practices vs. solo advisers. Don't assume your adviser is part of a team just because he works at a national bank, insurance company, or brokerage firm.
In most firms, each adviser works independently, with little to no regard for the advice, services, or strategies provided by others in the firm. Clients working with solo advisers are thus more dependent on the actions and decisions of that adviser than those who work as part of a team. Teams also provide greater depth and experience.
Category #7: Costs.
Are the total costs you're paying competitive? It is foolish to try to seek the lowest costs possible, but it's equally foolish to be paying costs that are significantly higher than those available elsewhere. Your adviser can benchmark costs for you, and a quick Internet search or a few calls to other firms can give you an idea of what others charge.
Remember that there's always a trade-off between costs and services/quality, and those you contact will try hard to convince you to switch firms. Therefore, it's important when exploring costs that you examine all costs — not just the adviser's fee, but also the costs of the investments that the adviser has recommended for you.
Category #8: Regulatory compliance.
Maybe you checked with FINRA, the SEC, and state regulators before hiring your adviser to make sure he had a clean record. But how do you know that there haven't been complaints, violations, or fines issued in the years since you've been a client?
Checking your adviser's background every 3–5 years is a good idea.