What Works: Five Things You Must Know About Your Financial Adviser
Author: Roger Gershman
February, 2015 Issue
Whether you invest for your business or your personal life, the decisions you make can increase or shrink your company’s reserves and personal wealth. Enlisting the help of an investment adviser won’t necessarily help your efforts unless you take some steps to ensure the right fit. Here are five things you must know about your investment adviser:
1. How is your adviser compensated for managing your portfolio? Most advisers are paid as a percentage of assets managed. For example, a $500,000 portfolio might incur a 1.5 percent annual asset charge annually, or $7,500. Others still charge by the trade—and the overly aggressive adviser might make more trades than needed to earn extra commission. Choose what compensation arrangement is best for you. Typically, a larger, average-traded portfolio is best served by an asset-based charge. Infrequent traders might still consider commissions.
2. Will you receive a written investment plan based on your objectives, risk tolerance and time horizon? And will your adviser update that plan annually with you? When life changes, your investing approach should change with it.
3. Will you receive accurate, real-world accounting each quarter, detailing how your investments have performed? Most important, will your adviser compare your portfolio’s performance to an objective benchmark, net of any fees? You won’t want your mostly technology stock portfolio compared to Standard & Poor’s 500 Index, which still includes many non-tech stocks. And you’ll want your quarterly performance presented net of fees and charges because—let’s face it—fees subtract from performance.
4. Does your adviser have specific experience dealing with investors like you and portfolios like yours? The answers to this two-part question are crucial. If you have a $1 million account and your adviser typically caters to investors with $100,000 portfolios, do you want your account to necessarily be his or her largest? If you’re nearing retirement age and you want to temper your portfolio’s risk, does your adviser have other clients in the same situation?
5. Does your adviser practice full transparency? This question—and its answer—should be plain and simple. Anything less should disqualify candidates to become your adviser.
Roger Gershman is founder and CEO of WealthGuard, Inc., which is the nation’s only independent watchdog service that represents the better interests of individual investors, only. Hence its slogan, “We watch the people who watch your money.” To learn more, call (888) 802-3935 or visit www.wealthguardinc.com.
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