Complain about a product or service

Is It Time to Fire Your Financial Advisor?

It's true: tough times call for tough decisions

By Fred Yager
ConsumerAffairs.com

July 27, 2008

Their main complaint isn’t a drop in the performance of their portfolios. They aren’t blaming their broker for the subprime mortgage mess that’s been preying on all the other markets. No, it is because of what they consider poor service during their times of stress as the clients are dealing with the scary news stories about the economy, huge writedowns, and crumbling home and investment values.

How can you tell if your financial advisor is giving you the service you need during these difficult markets? Moreover, how do you know when it’s time to either switch advisors, or take total control of your investments and do yourself?

What to look for

What are the signs that your financial advisor or planner either isn’t doing his or her job or doesn’t seem to have your best interest at heart?

One key element is to make sure you and your advisor are in agreement over what your goals and needs are and that he or she is carrying out the financial plan or investment strategy that you originally agreed to.

Just as important these days is to ask whether that original strategy is still working in the current environment and if it’s not, how should it be adjusted?

This is where you’ll learn whether your advisor really knows what he or she is doing when the market get as bearish as it is now. “Bearish” is Wall Street speak for being pessimistic about where the market is going and a bear market is one that has dropped at least 20 per cent from its 52-week high.

This current market keeps straddling the technical “bear market” fence but it sure does feel like a bear. It’s like saying that we’re technically not in a recession while many experts say we’re in the worst economic situation since the Great Depression.

What should your advisor do?

While taking your risk tolerance into consideration, your financial advisor should be in regular contact with you to make sure you understand what’s going on during volatile market swings. Has he or she adequately hedged your investments with the proper defensive diversified positions to protect your portfolio against the downward trend?

Market experts will tell you that this is the kind of “stock pickers” market where you can really make money if you know what you’re doing.

The trick is to pick those undervalued companies that have strong fundamentals such as an adequate capital base and strong dividends. This will be where the “deals” are, but you or your advisor really have to do your homework. Isn’t that what you’re paying your financial advisor for?

Sometimes yes, and sometimes no. With large financial services firms, a financial advisor has become what’s known as a “wealth manager” overseeing their clients’ accounts. But they rely on fee-based professional money managers to do the actual “stock picking.”

The role of the advisor then becomes that of a handholder during difficult markets doing whatever they can to assure their clients that they are there to them protect their retirement accounts and investments.

Managing expectations

To put it another way, it’s their job to manage expectations so that clients understand that the recent loss in the performance of their portfolio was due to unanticipated market fluctuations and not because their financial advisor did something wrong.

Advisors who promise too much are the ones who disappoint when things beyond their control take a bite out of their clients’ investments. Advisors who manage realistic expectations will do far better: if or when a client losees money when markets turn sharply lower, they’ll feel that they could have lost a lot more if they hadn’t had their financial advisor’s help.

In these tough economic times, you need a financial advisor who knows how to formulate a financial plan designed to meet your needs, who will manage that plan and adjust it accordingly during poor markets, and who stays in contact with you even when times are hardest.

Here are some questions to ask yourself:

• Do you find yourself always calling your advisor and not the other way around?

• Are you reaching your investment or financial goals, with performance that is within your realistic expectations?

• Did you and your advisor have discussions that led to rebalancing your asset allocation and did these changes get you back on track toward your goals?

• Did your advisor accomplish all of this while maintaining a strategy that fell within your risk tolerance or, put simply, that allowed you to sleep at night?

If you answered “no” to more than one of these questions then it may be time to find a new advisor.

How do you go about finding a new financial advisor? How do you find any new professional service provider?

The most common way is to get a referral. Ask someone you trust or who’s the wealthiest person you know if he or she knows or, better yet, uses a reliable financial advisor. If that doesn’t work, you can request a referral from any of the following associations with referral programs:

• The Financial Planning Association, (800) 322-4237, www.fpanet.org

• National Association of Personal Financial Advisors, (800) 366-2732 www.napfa.org

• Certified Financial Planner Board of Standards, Inc., (888) 237-6275 www.cfp.net.

Questions to ask

The key to making the most of your first meeting with a potential new financial advisor is to come prepared. Make sure you bring along all of your bank and brokerage statements, tax returns, any retirement account reports, mortgage statements, and insurance documents. Ask questions such as:

• How long have you been in the business?
• What services do you provide?
• How do they make their money? Commission? Retainer?
• What do you think makes a good financial advisor?
• Where did you go to school?
• What licenses and certification do you have?
• Have you ever been disciplined by the National Association of Securities and Dealers (NASD) or other regulatory agencies?
• Do you specialize in a particular type of client?
• Do youprepare formal financial plans?
• How many clients do you have?
• How much money do you manage?
• How often will you hear from your advisor?
• How frequent will any written statements be sent to you?
• Will you be asked about every trade? If not, how will you be formed of any trade or investment decisions that are being made on your behalf?
• When will you meet again to assess how your account is going and if any changes need to be made?
• Will you meet in person or will you have regular conference calls?
• Do they have the name and contact information of any satisfied recent clients that are willing to share with you whom you might contact about their services?

Don’t just take your potential new financial advisor’s word for everything. After the interview, do your own due diligence. Check out their background, especially with the regulatory agencies. Go to the NASD website (www.finra.org). If your prospective financial advisor is legitimate, he or she will be registered there, including where he or she went to school, his or her work history, and if he or she has had any complaints filed against him or her.

Focus on the person and not the company. Every financial services firm has good advisers and not as effective ones. The most important thing is to pick someone you can develop a long-term relationship with regardless of what company he or she works for.

It's better to have a relationship with a person than a company because many good financial advisors switch firms for one reason or another.

Doing it yourself

There are plenty of reasons why going it alone in this turbulent market may be a good idea for some of us. The first thing you need to do it yourself is the time. Even Mad Money guru Jim Cramer, heard nightly by millions on CNBC, says that unless you plan on spending at least four hours a week researching potential investments and market trends, becoming your exclusive financial advisor just isn’t for you.

But if you do have time on your hands, being your own financial advisor may well be an option that will work for you. Here are a few Cramerisms pulled from an assortment of his writings and appearances for anyone who fashions himself or herself as a financial pro.

1. Always have cash on hand, about ten percent of your portfolio, so you can take advantage when stocks go on sale during down markets, like this one.

2. Focus on the downside versus the upside which means that instead of being concerned about how much money a stock can earn, keep in mind that all stocks eventually go down. Therefore buy companies with large stock-repurchasing plans and healthy dividends, which protect their investments when that decline comes.

3. If you don’t understand what a company does, don’t buy it.

4. Don’t get greedy, or be cautious when your portfolio is rising too fast because it could be a sign that you’re overexposed to a bubble in one stock or one sector. Think the dot com bubble of 1999 to 2000 when everyone was making money hand over fist in technology until everything collapsed. Take profits but stay diversified.

5. Don’t invest during the earnings season because this is when you see the smallest profits and the biggest losses of the year.

6. Investing in stocks is just one way to make money but there are other things you should do to protect your investments including paying off all credit card debt and having adequate health and disability insurance so you don’t get wiped out by unexpected hospital bills.

7. And finally, do your homework by putting in the time to read earnings reports and news stories and annual reports for you are more likely to make intelligent decisions over when to buy and sell a stock.

There are more considerations besides those seven. So if your head is already spinning, maybe managing your own investments is not the road for you.

That does not mean you should give up all control to your current or new financial advisor. You still want to be learning and paying attention to what’s going on in the world, in general and in terms of financial matters, so you are as savvy as possible.

Also, if you already have a demanding job, a family to take care of and other concerns right now it may be all you can do to just earn the money to put into your investments. Taking on complete responsibility for how those investments perform may not be the best decision for you, right now.

Report Your Experience
If you've had a bad experience -- or a good one -- with a consumer product or service, we'd like to hear about it. All complaints are reviewed by class action attorneys and are considered for publication on our site. Knowledge is power! Help spread the word. File your consumer report now.

Back to the top |