Financial Planning Blog

In the first part of this post I covered the first four questions from the Wall Street Journal’s recent article “Seven Questions to Ask When Picking a Financial Advisor”. Today we’ll finish off the final three questions, again with my comments.

1. What’s the advisor’s performance track record? If the advisor is actively managing investment portfolios (i.e. timing the market and/or picking individual stocks, bonds, or actively managed funds) this may have its place.  However, even if you believe their performance numbers, haven’t we all learned that past performance is no guarantee of future results? A better discussion revolves around the advisor’s investment philosophy, and how he or she is going to help you attain your investment goals. With advisors who practice more passive investment strategies (like Table Rock Financial Planning), reviewing the track record is simply a review of the market performance of different asset classes—a worthwhile bit of education for all investors.
2. Can the advisor put it in writing? Yes, you should expect this! A clear service agreement outlining what the advisor will do and what fees you will be paying is essential. Also (although it was not specifically mentioned in the article), if you are hiring someone to manage your investment portfolio, you should expect a documented “investment policy statement”. The IPS is the agreement with your investment manager on the how he or she is going to manage your portfolio. Although somewhat easy to miss this late in the article, the author makes her most important point,. “Finally, find out whether the advisors are going to take on fiduciary responsibility…to act in your best interest.” If not, they are only required to sell you products that are “suitable” for you, and “may not always be the best fit” for you. For more on this issue, see the recent post “Is Your Financial Advisor a Fiduciary?”
3. What do the pros think? The parting advice is to “double-check any big moves.” This is a good idea, whether you employ other professionals, or do your own research. Depending on what the issue is, an hourly financial planner, like Table Rock, or other members of the Garrett Planning Network may be a good place to look for a second opinion.

n the previous post, I provided links to some more comprehensive questionnaires you could use when selecting a financial advisor. For a little different take on this exercise,  look at the following articles from the Mole, Money Magazines undercover financial planner. First check out “Truth or Dare for Your Financial Advisor” and then “What Your Advisor Doesn’t Know Might Hurt You.” I believe the Mole is no longer publishing articles, but his work is archived and worth a look.