One of my favorite endeavors as an investment advisor is to speak with new and prospective clients about their market views, current holdings, and past histories. It provides me with an opportunity to learn from their successes and missteps, as well as provide insight into how they can lower their fees or make adjustments to reach their goals.
Many investors that I speak with have been very successful in their careers and have always managed their money themselves. They are ultimately their own advisor. However, they may not be satisfied with their results or know that they need to turn it over to someone with the time, tools, and discipline to properly manage their nest egg.
Others may have inherited an older advisor from their parents or chosen someone that was recommended by a friend. This group has generally given that person the benefit of the doubt based on perceived goodwill, but are recently not happy with their returns or portfolio structure.
There are also a thousand other reasons why you may feel the distress that it’s time to look for an advisor that you can align yourself with better philosophically.
Below is my list of traits that may help you decide when it’s time to enlist the help of a new advisor:
- You find yourself shaping your portfolio according to the current (or future) political candidates.
- You own silver miners, biotech stocks, and small cap energy companies, but think bonds are risky.
- You get the majority of your investment advice from CNBC or Fox Business.
- You sell everything on EVERY 7% drop and buy back again at new highs.
- You own 17 large-cap actively managed mutual funds and can’t explain why.
- You think owning gold is similar to holding cash.
- Your broker keeps calling about this private REIT with an incredible yield.
- You have a broker.
- You subscribe to 8 different newsletters who all provide conflicting advice, but you do it anyways to stay “diversified”.
- You don’t want to sell that mutual fund that has sucked for ten years straight because of “tax purposes”.
- You own something with a sales load or surrender charge.
- You check Zerohedge and Drudge Report more than Facebook.
- You click on any headline that starts with “Dow”, “crash”, or “watch out”.
- More than 50% of your portfolio has been in cash for the last 5-years because you are too afraid to put it to work.
You would be surprised how many of these bullet points come up again and again in the conversations I have with individual investors.
Many have also gone round and round with different advisors trying to find the “holy grail” of investment strategies. They end up going with the “safe in the bunker” guy in early-2009 and switch to the “biotech stock picker” in 2015. In between, they may have even been sold a few “guaranteed” annuities or dazzled by the “projected” returns and features of a variable universal life policy. They can’t seem to figure out why they can’t make any money and become distrustful of the industry as a whole.
There is no easy road to riches in the investment world. It takes a steady hand and a well-built portfolio just to achieve average results. Those who try to swing for the fences are often the ones that end up striking out. You can call up 20 shops and ask them how their returns have been the last three or five years. I have a pretty good feeling that the strongest track records won’t be the same ones the next five years. Investors who constantly chase performance will find themselves at the tail end of every new cycle.
The best advisors aren’t the ones with the best returns – they are the ones that keep you from making big mistakes.
They are the ones who talk you out of selling at the lows. They are the ones who actively tell you to avoid annuities, expensive life insurance, or private placements. They understand how to build a balanced portfolio to meet your goals and are able to clearly articulate their philosophy without complex jargon. They also structure their compensation to avoid as much conflict as possible.
In my opinion, the best tools for your wealth are exchange-traded funds (ETFs). They are low-cost, liquid, transparent, tax-efficient, and conflict-free. There are thousands of them to choose from in virtually every asset class around the globe. If you are able to join with an advisor that knows the ETF landscape, it can be a very fruitful relationship on both sides.
ETFs have been around for over two decades. They aren’t new and have proven themselves reliable through bull and bear markets. If your current advisor is still skeptical of ETFs, it’s because they are worried about their best interests not yours.
Similarly, you need to find an advisor who is compensated fairly with a structure that avoids conflicts and is easy to understand. I’m obviously biased as a fee-only advisor because I believe that it aligns my goals with the end-client and allows me to focus on building portfolios that are in their best interest.
There are many different ways that advisors in this business can be compensated such as flat fees, performance fees, and more. There are pros and cons to each arrangement that must be considered before you decide on the right relationship.
The Bottom Line: Seize This Chance to Find Your Match
Setting out on a new journey to hire an advisor can seem like a difficult chore. The easy thing to do is to just stick your head in the stand and let inertia take hold by doing nothing. That will likely result in the same mediocre or negative returns with mounting frustration that leads to emotional or impulsive decisions.
Now is the perfect time to grasp the opportunity that democratization in the investment world has given you. There has never been a better moment in the history of the world to be an investor. A wealth of diversified vehicles, low embedded costs, and time honored knowledge that is at your fingertips. Don’t let it go to waste.
Like this article? Read: 5 BIG Mistakes To Avoid When Choosing An Investment Advisor