Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Dow Trend Forecast Current State - 22nd Apr 21
Gold Rebounds Amid Positive Economic Reports - 22nd Apr 21
China's record first quarter fuels strong expansion in 2021 - 22nd Apr 21
Gold Price Next Key Level - 22nd Apr 21
Here's What to Look For When Hiring a Real Estate Agent - 22nd Apr 21
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How to Judge Your Financial Advisor

Personal_Finance / Investing 2013 Dec 10, 2013 - 05:43 PM GMT

By: Don_Miller

Personal_Finance

A friend of mine used to have three financial advisors whom he forced into competition. If one started underperforming, he would pull some money from him and give it to the other two. I’ve heard of similar strategies several times now. In some ways, it makes sense. However, this strategy misses the real purpose of having a financial advisor.


What makes one financial advisor better than another is not whether he earned 15% this year while the other guy earned 13%. (Now, if we’re talking about a mutual fund manager, that’s a different story.) Nonetheless, many investors evaluate their financial advisor in this way. They see advisors as stock pickers. It doesn’t help that advisors often portray them­selves in this same light.

However, you have to remember your financial advisor’s role in a financial institution. For your purposes as a client, advisors are the salespeople. That does not mean “sales­people” is a dirty word. The truth is quite the opposite; a trustworthy salesperson can be indispensable. However, their job is to find you the right product, not to pick the winning stocks.

Your advisor is not staying up late reading company annual reports. He does not create valu­ation models of stocks. He doesn’t know the ins and outs of P/E ratios, PEG ratios, liquidity ratios, etc. Those are all roles of a proper equity research department. At best, the advisor has read through research reports and has a very basic and surface understanding of an invest­ment. For this reason, it doesn’t make sense to fire an advisor based on him earning a few points less than another one; but there are other ways to gauge their performance.

If returns aren’t the responsibility of the advisor, what services can they provide us and how should we judge them? Here is a checklist of questions to consider:

  1. Is the advisor acting in your best interest? In particular, whether or not the advisor owes you a fiduciary duty is extremely important. I’d rather have an advisor who put me in a low, 0.5%- fee fund that earned 10% last year than an advisor who put me into a fund with near 2% fees that earned 15%. In the short run, the returns can blind you from the high expenses, but you shouldn’t reward a financial advisor for getting lucky. In the long run, you want someone who will find you the cheapest funds available. The job should be to save you money in the investment process; it is not to earn returns.
  2. Is the advisor knowledgeable beyond your investment portfolio? Since the advent of online brokerages, you really don’t need someone buying and selling stocks for you. You can basically do it on your own – especially with the help of a few good newsletters. Where an advisor can really add value is by organiz­ing your finances across the spectrum – from estate planning to insurance to your investment portfolio. Once again, it is not about returns, but rather how much the advisor knows about various financial products, some of which (like insurance) produce no return at all. The broader the advisor’s knowledge base, the better. 

    Also, remember to test their knowledge beyond just the basics. What do they sug­gest for inflation protection? Do they have more than one boilerplate idea like TIPS? And are they aware of interest-rate risks surrounding bonds? Your advisor does not need to be an expert in every field, but he should have a basic understanding of the options out there and the ability to reach out to other specialists when needed. The broader the advisor’s knowledgebase the better.

    Remember the premise from the movie Wall Street.  “I have hundreds of guys who tell me stuff I already know.  What I want is someone to tell me what I don’t know.”  There are too many times what we don’t know can hurt us financially; particularly when it comes to taxes.  This is where a good advisor really separates himself from the ordinary stock pickers.
  3. Has the advisor adequately matched investments to your risk profile? Since everyone is different in risk tolerance, we can’t tailor our Money Forever recommendations to every person’s financial situation. As a result, working with a financial advisor can help you allocate investments to match your risk tolerance. Again, it’s not about return, but instead matching your risk tolerance.

    If your port­folio earns 40% next year, you might be very happy, but the risks taken might have been extreme. Anything that can go up 40% can go down 40%. The advisor needs to find investments that meet your comfort level. Judge your advisor by your nights of sound sleep rather than percentage points gained.
  4. Are the investments performing as promised? This last category has a little bit to do with return, but not entirely. If your advi­sor says that your equity portion should move up with the market but it doesn’t, there’s a problem. If the market moved up 10% and your equity portion moved up only 8%, it isn’t necessarily grounds to fire an otherwise trustworthy advisor. However, suppose your investment only moved 2% in a similar market move. Then, there seems to be a problem with the investment selection. Maybe the advisor didn’t understand them properly, or perhaps the research department seriously messed up. Either way, there are some competence issues that need to be addressed; either the investment or the advisor needs to go. Also consider that if an advisor and his research team can’t properly predict perfor­mance under certain circumstances, then how can they possibly match the invest­ments to your risk profile?

To sum it up, remember that your financial advisor is in the business of sales (a laudable field). And if he’s a good financial advisor and salesman, he or she will steer you toward investments that best suit your needs at the most reasonable prices. However, he’s not a stock picker, so your evaluation of an advisor’s services shouldn’t be primarily about return. Don’t praise his knowledge of hot tech stocks but rather his knowledge of financial products and ways to better organize your financial life.

You have to judge the financial advisor for what he does  by looking at the overall picture.  . If the market tanks by 30% that is beyond his control and you will take some losses.  At the same time, did he have proper safeguards in place to protect you from catastrophic losses.   When the market is rising, your financial advisor can make money for your portfolio is by saving you money on fees, insurance policies, and tax issues along the way. Those savings are a measure of his or her worth, as they are the direct result of his actions, not a roll of the dice in the stock market.

Financial advisors may all be salespeople, but that’s not such a bad thing in my book.

I trained salespeople all over the world for 35 years and worked with 40 of the Fortune 500 companies in the process. As a general rule, the top 20% of salespeople are respon­sible for 80% of sales.

At one point, several of my clients funded a study to find out what made their top sales­people different from the others. I traveled with these super-salespeople to pinpoint the attitudes and habits that set them apart.

During this study, I quickly discovered that it made no difference what they sold; the extraordinary salespeople all did the same thing. I recall one in particular – a salesman who sold plastic pellets, a fungible commodity – for a Fortune 500 company. I met the president of one of his largest clients and asked why he did business with this salesman’s company even though he knew its prices were a bit higher than the competition’s.

He went on to tell me a story. While he was having a casual lunch with the salesman, he complained that his company’s healthcare costs were skyrocketing. The salesman listened intently and said, “I think I can help you.”

The salesman went back to his own company, found the person responsible for its health­care costs, and asked if he would give his customer some ideas for saving money. He set up the meeting, and the end result was that his client saved over $1 million by implementing some of the ideas presented. On top of that, the salesman also brought in resources from his own company to help his client become ISO certified, which also saved a lot of money and improved the quality of its product.

In a nutshell, this salesman acted as a business consultant on his own initiative. The plastic pellets he sold were almost a secondary consideration. No one would dare dump this salesman’s company as a supplier. He saved his clients too much money by matching up his resources with their needs.

In my travels with the top salespeople, they were all doing the same thing: business con­sulting. They dealt with high-level management and helped solve their problems. In exchange, their clients were loyal and continued to buy from them.

This indeed is also how truly independent, professional financial advisors operate. They have a lot of product-specific knowledge, but they put their clients’ big-picture needs first. And if a client has a particularly thorny issue, they will consult a specialist, maybe an estate-planning attorney or an insurance expert. Just like the plastic-pellet salesman, they elevate themselves above average-Joe financial advisors by looking out for their clients’ overall best interests. This global, client-centric approach is what keeps clients coming back.

Integrity, my friends, is the name of the game. The top salespeople act as though they are fiduciaries, regardless of what they sell or what technical background they have. Who they are and how they do business is what sets them apart.

The Money Forever team is here to help you sift through the rubble and find the exceptional advisors. If you'd like to receive more information on how to find an advisor to prescribe the right financial solutions for you, please check out our special report, "The Financial Advisor Guide." If you are not already a subscriber, you can still get your own copy HERE.

© 2013 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules