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Financial advisor performance evaluation

8 categories to help find a good financial advisor.

Too often, consumers hire an advisor without giving any consideration to the quality of their selection. Even when you carefully choose an advisor, complacency (or merely inertia) can set in. As a result, many consumers fail to evaluate their advisor’s performance.

Consider the following eight categories of a financial advisor’s performance evaluation:

Category #1: Your relationship

  • Do you feel comfortable talking with your advisor?
  • Do you look forward to conversations, and when done, are you happy to have had the conversation?

Category #2: Services provided

  • Is your advisor delivering services that are of value to you? Think of all the services you receive and consider if you’d be unhappy if any of them ceased. If you wouldn’t miss them, they aren’t of value.
  • Also think of services you’d like to receive but aren’t currently receiving. Have you asked your advisor to provide them?

Category #3: Investment performance

  • Are your returns competitive, based on your goals, risk tolerance and personal situation?
  • You should have a benchmark relevant to your situation for comparison purposes; your advisor can provide one for you.

Category #4: Investment risks

  • Has your account fluctuated in value beyond your comfort level?
  • If so, have you discussed this with your advisor, and are you satisfied with the results of that conversation (i.e., your investments were changed to better reflect your comfort level, or your advisor’s explanation made you more comfortable with the level of volatility you’re experiencing)?

Category #5: Outlook

  • In times of economic volatility, is your advisor still equipped to effectively advise you?
  • Has your advisor kept you up-to-date on their thoughts and perspective?
  • Is your portfolio still properly positioned?

If your advisor has been making or suggesting major changes in your investments, they may have lost confidence in their prior advice – rendering suspect the confidence you can place in their current advice. Seek an advisor who is able to articulate an effective, cohesive strategy going forward.

Another way to evaluate your advisor’s performance is their communication with you. Decide if your financial advisor communicates with you regularly – calls, emails, letters and responses to yours. This can be especially important, or just comforting, during times of market volatility.

Category #6: Team-based or solo?

There is a lot of value in team practices vs. solo advisors.

  • Don’t assume your advisor is part of a team just because they work at a national bank, insurance company or brokerage firm.

In most firms, each advisor works independently, without cohesive advice, services or strategies provided by others in the firm. Additionally, you may ask yourself what happens if this advisor isn’t available – vacations, illness, etc. – or if they leave the firm? Teams can also provide greater depth and experience.

Category #7: Costs

  • Are the total costs you’re paying competitive?

While it isn’t recommended to seek the lowest costs possible, it is equally foolish to be paying costs that are significantly higher than those available elsewhere. Your advisor can benchmark costs for you, and a quick internet search or a few calls to other firms can give you an idea of what others charge.

Finding the lowest cost or avoiding the highest cost isn’t ideal. Remember that there’s always a trade-off between costs and services/quality. Therefore, it’s important when exploring costs that you examine all costs – not just the advisor’s fee, but also the costs of the investments that the advisor has recommended for you.

Category #8: Regulatory compliance

  • Verify your advisor’s records with FINRA, the SEC and state regulators.
  • Check your advisor’s background every three to five years to confirm they are still in good standing and there haven’t been any violations or fines issued in the years since you’ve been a client.

 

There are several factors to consider when evaluating your financial advisor’s performance. It is important to review your advisor annually to help ensure you’re still happy with their communication, your relationship and how they’re helping you plan for the future. If you’re looking for a good financial advisor, we hope you’ll consider speaking with one of our fiduciary planners at Edelman Financial Engines as part of your search.

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