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Article Archives: 09/08/2004

Bum or Shining Star?

Is your financial advisor a bum or a shining star? Read on and I’ll show you a simple way to find out!

I often see people fail to properly manage their relationship with their investment advisor. Your opinion of your advisor should be based on an objective standard such as the performance of your investments instead of a subjective standard like “He’s so nice.”

Would you continue to go to the same dentist if your teeth started falling out? No. Would you have the same person mow your yard if they always missed spots and let it grow to your knees before they mowed it? Probably not--unless you were using it for hay!

Then apply the same objective standard to your financial advisor. Your opinion of them should be based on the performance of the investments they recommend, not on their personality. You can easily invest in what are called “index funds” on your own. And it costs you very little. So doesn’t it make sense that you would only want to pay for an advisor if they consistently did better than what you could do on your own?

Unbelievable, 70-80% of the people I meet with would have done better investing on their own than with their current advisor!

So the question is, if you are currently using an advisor, how did he or she do compared to what you could have done on your own? Most of you have no idea because your advisor won’t tell you! Most advisors don’t want you to know.

If you work with a professional advisor you should sit down with them and decide on a standard, a benchmark that will be used to measure their performance. Then you should expect (or demand) your advisor to give you a quarterly report that clearly shows you how much you paid in commissions and fees, the performance of your portfolio in percentage terms and the performance of the benchmark.

That way you get to see in clear black and white what happened with your money. It allows you to objectively measure how good or bad your advisor is doing. By the way, most likely your advisor doesn’t currently give you this kind of a report. They may not even have access to one. If that’s the case, it may be an indication of the quality of your advisor or their recommendations.

John and Belinda found this out the hard way. They had been faithfully putting money away each year for retirement, following the advice of some ‘professional’. Come to find out, the performance of their investment was terrible. Over 80% of other similar investments consistently did better than theirs!

They thought their ‘professional’ was doing a good job because she was so friendly and seemed to know what she was doing. John and Belinda failed to measure the performance of the advisor’s recommendations against an objective standard. If they had they could have retired years sooner.

Can you see how having that kind of an objective standard puts you in control? You won’t have to wonder how good your advisor is. You won’t have to base your view of them on a subjective opinion. More importantly, it will let you know whether or not you are on track to reach your goals. I provide a report like this to my clients and they love it.

If your current advisor isn’t using a benchmark to measure his or her performance, I would set an appointment and ask them flat out, “How has my account performed as compared to the industry benchmark?” Demand a IMRA-compliant report that provides return information on your specific account. If they aren’t holding themselves to some kind of standard, maybe you should consider finding a new advisor who will.

Remember: it’s your money. Don’t just assume your advisor is doing a good job for you. Make them prove it. It’s a great way to find out if you are working with a bum or a shining star.

For free, clear, unbiased answers to your financial questions send me an email or give me a call.

Mr. Voudrie is a Certified Financial Planner™ Professional, nationally syndicated newspaper columnist, holder of 4 financial related Patents-Pending, and President of Legacy Planning Group, Inc., a Private Wealth Management Firm in Johnson City, TN. He can be reached toll-free at 1-877-827-1463 or at jeff@guardingyourwealth.com.

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