Posts Tagged ‘Vicinity’
Sunday, September 19th, 2010
Recently, we’ve seen lots of media coverage about the number of investors who are rethinking the relationship with their advisor. Research studies indicate that somewhere in the vicinity of 10% of investors say they’re likely to switch advisors or firms in the next twelve month, up from 6% a year ago.
In early June, I wrote a column in the Globe and Mail titled “Taking the time to find an advisor may be your best investment”. While directed towards investors, it’s also important reading for advisors talking to clients thinking about a move — the article outlined four key points that investors considering a change in advisors should bear in mind. Don’t rush the process
Given its importance, choosing the right financial advisor is a decision that shouldn’t be rushed. Sometimes in the past, investors have selected the first advisor they spoke to or made a decision based on an advisor’s glitzy office and apparent success — and then regretted this decision afterwards.
When looking for an advisor, most investors begin by asking people they know for suggestions. And while a referral from someone they trust certainly increases the odds things will work out, just because an advisor is a good fit for a friend doesn’t mean they’ll be right for them.
Just as in any important decision such as buying a house or switching jobs, to increase the odds of getting this right, investors need to gather lots of information and dig deep before deciding.
Given the potential impact of this decision, it’s essential for investors to take their time. In the column, I suggested investors tell an advisor they’re talking to that they’d like to sit down for a couple of in depth discussions before deciding if they want to work together.
During these meetings, the first objective for investors and advisors is to gather facts that will allow them both to get a sense of whether this a good fit.
It helps if investors are clear on the information they’re looking for — based on recent conversations with investors and advisors, I’ve developed a list of 25 questions that investors can draw from, in nine different categories such as understanding your investment philosophy, the role of financial planning in your practice, the team that you have supporting you, how you’re compensated and what you’ve advised clients over the past twelve months.
Something for both investors and advisors to consider in this fact finding process is to write down a list of things you’re looking for beforehand. After an initial meeting, you can compare the answers you got to this list.
A full list of the questions investors can draw from in a conversation with a potential advisor can be found at the bottom of this article, or go to the bottom of the article at: http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/taking-time-to-find-an-adviser-may-be-your-best-investment/article1169384/
Getting a reading on chemistry
Once you’ve got a handle on basic facts, the second issue for investors and advisors alike is getting a reading on chemistry.
For investors, are they comfortable talking to you? Do you ask good questions? Do you really listen to their answers and appear truly interested in their situation? Do you talk in plain English and use terms that are easy to understand? Do they like you as a person and feel they could be absolutely open with you? Finally, do they get positive vibes and feel that they could be confident in the advice that you provide?
Understand that the decision to work together is a mutual one
It’s not just investors who are making judgements — advisors should also be getting a reading on investors and whether they’ll fit into their practice. A point I made in the column was that the best advisors can pick and choose and are discerning about who they work with.
In the column, I talked about a number of questions an advisor might be looking to answer:
Is the investor really serious about entering a relationship with an advisor they can trust and about sticking to their plan?
What’s their history of staying the course when we hit bumps in the market? Are you looking at panicked calls about going to cash every time the market drops a few hundred points?
How realistic is the investor about the level of risk required to achieve the returns they’re looking for? Do they have the emotional equilibrium to deal with market volatility? When things go wrong, is there a tendency to point fingers and look for someone to blame?
Do they have a history of switching advisors every time there’s a downturn? A trail of past advisors or history of complaints is a huge red flag
Finally, are they prepared to pay a fair price for the advice they receive — or will you be facing never ending battles on commission levels, with the cost of executing trades with discount brokers as the primary point of comparison?
I’ve had great feedback on this column from both investors and advisors. At some point in the next few days, consider setting a few minutes aside to review this list of questions — and think about how you’d answer if a prospective client put these to you.
If you’re interested in reading the full article, click here:
25 questions for potential advisors — This is the list of questions for investors on the Globe website
To investors selecting a new advisor
Below are 25 questions you could ask a financial advisor you’re considering working with, broken down into nine broad categories. These questions were developed based on in depth conversations with investors who have recently selected a new advisor and with financial advisors themselves.
This list may seem overwhelming initially but remember, it is unlikely that you will use them all — pick the ones that are the most relevant for you.
These questions should not be used as a laundry list to blast through — to get a good handle on whether you and an advisor will work well together, exploratory meetings have to consist of a conversation, not an interrogation. That said, some of these questions can be a starting point to learn more about an advisor you’re talking to.
It’s important to note that there are some tough questions on this list and some will require real thought by the advisor– seemingly simple questions may need complex answers. Rather than focusing on an advisor who provides quick and glib responses, look for someone who really thinks about your questions and gives considered responses.
- Tell me about yourself? How long have you been a financial advisor?
- What did you do before you became a financial advisor? What made you decide to pursue this as a career?
- What kind of qualifications do you have? Tell me more about those qualifications. What do you typically do to each year to stay current?
- Tell me about the firm you work with? What attracted you to this firm?
Fit and chemistry
- We all have preferences in the people we work with. What’s the most important thing you look for in a new client? Describe the kind of client you find you work with best?
- What’s the average asset level of your clients? How many client households do you work with — and where would my portfolio fit in?
- Tell me about the last couple of clients who left you and took their account elsewhere. Have you had any client complaints to your firm in the past couple of years?
- Do you typically complete financial plans for clients like me? What would be covered in this plan? What would the process be to develop this plan?
- I know that some advisors put their primary focus on getting the investment process right while some others also get into issues like insurance, tax planning, estate planning issues and retirement planning. Where do you fall on this spectrum?
Investment philosophy and your portfolio
- What’s your investment philosophy and process? In your experience, how is this different from other advisors?
- What kind of changes would you recommend in my current portfolio? Tell me more about about your reasoning for these changes. Which of my current holdings would you suggest we retain?
- I know that some financial advisors build portfolios of stocks and bonds for clients themselves, some delegate this to money managers and some do a combination of the two. Tell me about your approach to this.
- How do you go about building portfolios or choosing money managers? To what extent do you rely on research from your firm or outside parties in selecting stocks and money managers.? How do you go about monitoring portfolios or money managers?
- I understand that there are two schools of thought about trying to get in and out of the stock market. I know some advisors are fairly proactive about moving parts of portfolios to cash if they think the market is poised for a correction, while others believe you can’t effectively time when to get in and out and tend to be fully invested all the time. Where do you stand on this issue? As well, what’s your stance on making calls on getting in and out of individual sectors such as energy?
- How often do you typically meet with clients like me? How long do those meetings last? What do you cover in those meetings?
- How have you been communicating with clients like me since last fall? What have you been doing differently as a result of the market events since September?
- How frequently do you call clients like me between meetings? How long does it typically take to return calls from your clients?
- In ballpark terms, what would my annual fee be if we worked together, including fees charged by money managers?
- How are you paid? What kind of money would you make on my account annually? What would I get for that?
- Tell me about the team that you have supporting you.
- Would you be my primary contact or would I be dealing with one of them day to day? What kinds of issues would I be talking to them about as opposed to you?
The last 12 months
- How did you position client portfolios like mine going into the beginning of last year?
- What kinds of changes have you recommended to clients since last fall? What kind of advice are you providing to clients like me today? What are you doing to manage risk in client portfolios in light of how uncertain things seem to be these days?
- Without getting into the actual dollar amounts, in general terms would you be willing to share what you held in your own portfolio going into last fall and what your own portfolio looks like today?
- In your opinion, what are the most important lessons you’ve learned as a result of the events of the past year?
Tags: Apparent Success, Buying A House, Depth Discussions, Fit, Friend Doesn, Gathering Information, Globe And Mail, Investors, Jobs, Media Coverage, Objective, Odds, People, Referral, Relationship, Right Financial Advisor, Sit, T Rush, Taking The Time, Vicinity
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