Choosing a financial advisor can be stressful. With so many options out there, it is hard to know who to trust with your hard-earned money. Perhaps even harder than choosing a financial advisor is figuring out if your current advisor is doing a good job or not.
Too many people decide to stay with their current advisor because of the fear of change, and more importantly because they do not know how to grade their current advisor. It is tough to do.
What makes it so difficult is that there is no single way to judge how good of a job your advisor is doing. There are several things you should keep in mind when deciding whether or not to stay with your current advisor.
Quality of Your Relationship
The first thing to consider is the quality of the relationship you have with your advisor. Ideally, this is going to be a very long relationship, so you need to have a good rapport with your financial advisor. You wouldn’t have a financial advisor if you knew all the right moves to make, but at the same time, you want someone who listens to your opinions. Is you financial advisor easy to get a hold of? Do they return your phone calls? Do you enjoy talking to you advisor, or do you tense up when you pick up the phone? That should tell you something. If your advisor is doing a good job, you should look forward to hearing from him or her. If not, then chances are you have been given bad news on too many occasions, and that should tell you something in itself.
Secondly, are your absolute goals being met? By this, I mean is your financial advisor doing what you hired them to do? Perhaps you found a financial advisor to help you save for retirement, or for a child’s college. Are you still on track to meet those goals?
If you have gone 2 years and not seen any increases in your savings, then you advisor is not accomplishing your ultimate goals. In this scenario, you don’t need to compare your results to the overall market, or the return your neighbor is getting on his money. You just have to see if you are on track for meeting your goals, and if not, then your advisor is not doing his job.
You also have to look at your investments in relative terms. Evaluate the risk you are taking, and then determine you could get a bigger return at a similar level of risk somewhere else. Your advisor should be able to benchmark your holdings against plans with a risk level. It should be fairly straightforward to compare your portfolio’s performance to those benchmarks.
Finally, you want to pay attention to how much you are paying in fees each year to your advisor. Once again, it should be easy to get this information from your advisor. Once you get a breakdown of all the fees you are paying. Poll some other advisors in your area to compare their fee structure to what you are currently paying. The more you pay in fees, the longer it is going to take to accomplish your goals, so you need to make sure you are not being overcharged.
Grading your financial advisor is not an easy task. There are lots of factors to consider and some of the should probably outweight others. Perhaps you find out that you can pay lower fees to another advisor, but you have a great relationship with your current advisor and he or she is beating benchmarks and accomplishing your goals. Would you still switch? Probably not. Likewise, if you are getting a great deal in terms of fees, but are not making progress toward your goals, would you stick with your current advisor? Again, probably not.
With a decision like this, you have to feel comfortable, but it’s a good idea to check the numbers when you can to make sure the facts support your feelings. If you are 100% happy with your advisor and your progress towards accomplishing your goals, then stay where you are… but if you have any feelings that things are not going as planned, take a hard look at the numbers and see what other options are available to you.
Getting a second opinion is always a good idea. Don’t be afraid to reach out to other advisors in your area to see what they have to say about your current situation, and how they would change things. Take this information back to your current advisor and gauge his or her reaction to your ideas. Their reaction should tell you a lot.