When the love is gone

Does your financial adviser know you and your needs, and care enough to help you through the tough times? If not, it may be splitsville time.

By Rob Carrick
Globe Investor Magazine, November 18, 2008
Illustration by Leif Parsons


You didn't marry your investment adviser, so what's to stop you from breaking up if you're not happy? The hassles of finding someone new to manage your money, for one thing. You say you've lost money over the past year? Given the market meltdown, that's probably not a firing offence. You say there's been radio silence since he sold you a bunch of mutual funds a couple of years ago, and that your portfolio is way out of sync with the kind of investor you are? Now we may have a case. In a bad year for the stock markets (such as this year), it's a victory merely to have lost less than the major indexes. Only if your portfolio has consistently underperformed do you have strong grounds for firing your investment counsel. Here are other leading indicators that you're stuck in a dysfunctional financial relationship.

He has no time for you

There's no definitive amount of contact prescribed for advisers and clients, but you should expect a face-to-face meeting once a year and periodic phone chats or e-mail exchanges. Advisers tend to weigh the amount of attention they provide to clients according to the size of their accounts, which means that if you have an account in the high six figures or more, you should be getting lots of TLC. (If you've got a tiny account and aren't adding new money, you may have trouble finding an adviser in the first place.) Smaller portfolios mean you will get less attention, but that certainly doesn't mean you should be ignored.

When meeting with your adviser, expect more than polite chit-chat. You should receive an honest accounting of where your investments stand in terms of gains or losses, and verification that your financial plan continues to meet your needs.

He ducks the tough questions

You should expect to hear from your broker when the stock market tanks, even if he just calls to explain what's going on or attempts to deliver platitudes about staying the course. A broker who has been hiding during the financial meltdown this fall is either taking you for granted or is a coward who's afraid to confront the carnage in your account. What you want to hear from your adviser in tough times is an explanation of how your financial plan remains on track despite any short-term setbacks. Advisers can't be expected to get every call they make right, but they should be correct often enough that mistakes can be acknowledged and discussed calmly to put them in perspective.

He has no plan for you

If your adviser hasn't drafted a financial plan for you, that's a very bad sign. When you're young and just starting out, it might be sufficient for him to merely set up a portfolio of mutual funds. Once you've got kids, a mortgage, a killer tax bill and worries about funding your retirement, you need a full financial plan, including retirement, estate and tax planning. The Financial Planner Standards Counsel, which administers the Certified Financial Planner (CFP) designation, advocates a six-step financialplanning process that includes the development of a blueprint tailored to a client's specific needs. Crafting such a plan begins with your adviser taking the time to get to understand you and your financial needs through a conversation in which he does lots of listening.

He's not growing with you

Failure, or inability, to meet your changing needs is another reason to leave. It's possible to simply outgrow a diligent but small-time adviser as rising income increases your need for specialized investment, tax and estate-planning counsel. It's nothing personal-you may just require someone who has a more focused set of skills, or works in a firm that has experts in such areas as estate planning or taxation.

Make your decision based on what your adviser says and does, not the razzle- dazzle he brings to the relationship. Fancy offices, slick newsletters or the occasional free lunch mean nothing to your bottom line.

He puts his interests ahead of yours

Your adviser is almost begging to be fired if he enriches himself at your expense. Let's say you're a risk-averse, incomeoriented investor and you learn that your money has been put into equity funds that have sagged badly in a market downturn. Why would your adviser deliberately disregard your wishes? The likely answer is that equity funds pay a lot more in commissions than bonds or bond funds. Churning is another unforgivable sin. Typically, this involves an adviser who has discretion to initiate trades in your account and then abuses this trust by buying and selling strictly to generate commission income.

You want to be on your own

There's another reason to dump your adviser that has nothing to do with his performance: to take over your own portfolio as a do-it-yourself investor. If you've got the savvy, time and confidence to manage your own account, you stand a good chance of making better returns than your adviser can deliver. This is less a matter of investing experience than of fees and commissions. Do-it-yourself investors can trade stocks for as little as $5 to $10 a pop through an online broker, and they can further reduce fees by opting for exchange-traded funds over mutual funds.

Fortunately, a financial breakup need not get ugly. While it's a time-consuming chore to come up with a new adviser, it could hardly be easier to fire your old one. In fact, you don't even have to do the deed yourself. Just fill out an account transfer form with your new money manager and have him file the paperwork on your behalf.

But before you make that drastic move, consider whether there's hope of reconciliation with your current adviser. If you think so, then schedule a meeting and raise your concerns. A heart-to-heart talk may be all you two need to salvage your troubled relationship.

Five questions to ask before you hire an adviser

1. What are your credentials?

THE RIGHT ANSWER
A widely known designation such as Certified Financial Planner (CFP), Registered Financial Planner (RFP) or Chartered Life Underwriter (CLU)

THE WRONG ANSWER
Anything that suggests the adviser has avoided committing the time and effort to getting properly accredited(CLU)

2. How often will I hear from you?

THE RIGHT ANSWER
Something specific, as in one face-to-face meeting per year plus a check-in phone call or two(CLU)

THE WRONG ANSWER
Vague promises or, worse, anything that suggests occasional newsletters will suffice as client outreach

3. Can I talk to a couple of your clients to see how satisfied they are?

THE RIGHT ANSWER
"Sure. Here are some names"

THE WRONG ANSWER
Anything else

4. What would you like to know about me as a potential client?

THE RIGHT ANSWER
Lots of questions about your investing background, tolerance for risk, goals, aspirations and family situation

THE WRONG ANSWER
An apparent lack of interest in who you are as an individual

5. What are some of your success stories?

THE RIGHT ANSWER
Stories about clients who are financially comfortable thanks to good advice

THE WRONG ANSWER
Macho talk about stock- and fund-picking home runs