We constantly meet with prospective clients whose current advisers, in our opinion, are not providing them what they need to be financially successful. Here are some red flags that suggest it's time for a change.
Guessing risk tolerance. Subjective questionnaires used by most of our industry to determine risk tolerance usually miss the mark. When we analyze prospective clients' current investments, 4 out of 5 have portfolios where actual risk and tolerance are not aligned. If your adviser is not using more sophisticated tools and technology to determine your comfort with risk, it's a red flag.
Lack of planning. Frequently, we meet with prospective clients whose adviser has never prepared (or even offered) a formal retirement savings and investment strategy. Without preparing a strategy for a client, it’s nearly impossible for an adviser to develop a customized allocation of assets that a client is comfortable holding through good and bad market times, based on statistics that support that the asset allocation decision provides a high probability over the long run that the client’s retirement income will exceed expenses. If there is not a roadmap that guides your adviser’s investment decisions for you, it's a red flag.
Lack of transparency. There are two common issues with investment performance. The first issue is when an adviser doesn’t report performance at all to a client. The second issue is the adviser does report performance, but it is not compared to a broad benchmark, or blended benchmark of indexes related to your target asset allocation. If your adviser is not producing a report at least annually that compares your actual performance to an appropriate benchmark, it's a red flag.
FEES! With an average industry investment advisory fee of 1% of assets, a client’s probability of achieving performance in-line or exceeding benchmark returns is greatly reduced. High fees in our industry does not translate into better results. As the founder of Vanguard, the late Jack Bogle, wisely said: “In investing, you get what you don’t pay for.” If you are paying 1% or more in fees, are there additional services that justify the expense? If not, it's a red flag.