The Client/Advisor Relationship


HandshakeWhat can a client receive from a good relationship with a financial advisor? What does that relationship look like? While companies are spending millions on research on Behavioral Finance, I suspect most client consumers spend little or no time and effort to evaluate what they want and need from a financial professional.

Most might focus first on the possibility of having better investment results. A Boston research company, DALBAR, looks annually at average investor results from decades-long periods. It regularly reports that average investors’ net returns after inflation are woefully less than if they had simply used an index such as the S&P 500 or even Barclay’s US Aggregate Bond index and stuck with it through thick and thin (www.dalbar.com).

How could this be? Most of us unfortunately follow the herd whether upward and onward or over the cliff. We cycle (at the wrong times) between fear of loss and fear of being left out. So obviously we can all use an objective third party to help us to make more rational and less emotional decisions.

How advisors perform this varies, but there are two primary ways. First, if you have purchased investments through a Registered Representative and Broker/Dealer, he or she will probably try to help you avoid selling in a time of panic. Prices are often near the low point by the time everyone wants to sell.

Second, if wearing the hat of a Registered Investment Advisor with discretionary authority to invest for you, he or she should be proactively changing your portfolio on an ongoing basis to improve your results. Sometimes that may mean having more in cash (and off the volatility table) than you think you want. In my view, it definitely means buying at lower market points toward the end of a storm and selling at higher points when barometric pressure is dropping.

But even more basic is an advisor’s role in helping you evaluate objectively your current situation and formulate goals for your future. Many of us spend more time planning our next vacation than our ultimate retirement from a paying job. And, as Yogi Berra is quoted, If you don’t know where you are going, you might wind up someplace else (www.brainyquotes.com.)

Money does not come with any instructions. Young people do not take courses in personal finance. You can do it yourself, but only with a lot of research, time and attention. Think about factors with which you might need help. Seek out someone who provides the kind and level of help you want. Many describe the right relationship as feeling like a good partnership. The future old person you become will thank you for it, later.

 

(Past performance is no guarantee of future results. Advice is intended to be general in nature.)

August 13th, 2014|Categories: Business, Economy, Investment Management, Personal Finances|