Can You Trust Your Financial Advisor?

Here's how three families found financial advisors to help secure their wealth

a different perspective than someone who has been in accounting. Make sure you’re comfortable with the advisor’s personality if you’re going to have a successful long-term relationship.”

Put performance into perspective. Brackens warns against judging a financial professional solely by past investment performance. “Be wary of an advisor who starts by telling you about investment results,” she says. “Someone may have had great returns in 1999, for example, but that might have been because of taking too many risks, with investments skewed toward hot sectors. Those types of portfolios were the ones hurt the most in the bear market that followed. An advisor who believes in asset allocation may not have great one-year results, but he or she will have outstanding long-term results.”

Talk money. “You should always ask how an advisor will get paid,” says Brackens. “Fees that are too low may be just as dangerous as fees that are too high. An advisor has to get paid, so low fees may mean that the advisor’s compensation will be driven by selling you things you don’t need.”

Have realistic expectations. Inquire about an advisor’s investment philosophy to see if it meshes with yours. “Ask what kinds of returns you can expect,” says Brackens, “and don’t believe an advisor who tells you that you’ll earn 20% per year. Historical returns are about 10% to 12% per year in stocks and less in bonds, so the investment goals should reflect that.”

If you can find a trusted advisor, you might be more likely to stick with stocks, which should be to your eventual advantage.

Calling himself a “short-term and long-term planner,” Jackson says that advisors should keep in touch with clients, helping them stay on course — provided that the course has been well set. And, he adds, “Clients need to cooperate with their advisors, too. One of my clients saw her assets go from $50,000 to $75,000 and then back down to $58,000. In her mind, she’s ‘lost’ $17,000, even though she’s still ahead for our entire engagement. However, if she had returned my calls during the period her assets were sliding, we might have been able to hold down those losses.”

A trusted advisor may be able to minimize losses and keep an investment strategy on track by providing support and perspective. Brackens notes that investing is very emotional, as people tend to want to pour money in at a market top, when stocks are most expensive, and to bail out at a market bottom, when stocks are cheap. “An advisor’s job is to help keep those emotions in check,” she says. “Your advisor should be standing at the edge of the cliff to keep you from jumping off.”

What to Ask Your Advisor (Before You Make Your Choice)
When you’re checking out financial advisors, here’s a checklist of questions to ask, courtesy of the Securities and Exchange Commission (SEC):

  • What experience do you have, especially with people in my circumstance?
  • Where did you go to school?
  • What is your recent employment
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