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Question: My husband handled our money using a financial adviser and when he passed away six years ago, I was financially set. The adviser he used has since retired and a new one took over. I explained that I don’t need to take any risks, that I know nothing about financial trades — and I would have to trust him to continue taking care of my portfolio. I can live very comfortably on the interest. The adviser is paid per trade. Over the years, I have lost about $400,000 to $500,000 but the adviser told me not to worry as the market goes up and down, and when things mature, I will recover the losses. I have read that so many other people are complaining about losses over the last few years, so I accepted this statement from my adviser as fact.
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I need a new adviser, and I don’t want to just pick one from the internet. I don’t know anyone who has the assets like I do, so I do not want to ask for recommendations. I did approach a man who I believed might also be financially set and he recommended an adviser. I brought my statement to his adviser and was told that my portfolio is a mess, I had many high-risk items in it and that I was losing substantially more money than most people. He wants 1.25% to handle my account; I think that is high. What questions should I be asking a new adviser I’m considering?
Answer: It does seem like a smart move for you to at least seek out advice from other advisers, especially since many offer a free initial consultation.
There are a couple potential red flags about your current adviser. Your current adviser is paid on a cost per trade, so it’s unlikely they’re a fiduciary who is putting your monetary best interests ahead of their own. This could also mean that the adviser is motivated to move your money around and make trades even when they don’t necessarily benefit you, because they’re paid each time they do so.
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And “it sounds like you should be in a very defensive portfolio, which makes me believe your prior adviser wasn’t listening to your needs,” says Bruce Primeau, a certified financial planner (CFP) at Summit Wealth Advocates. (Defensive investment strategies often include buying high-quality, short-maturity bonds and stocks, focusing on consumer staples, and holding cash in down markets.)
What to look for in a new financial adviser
Here are some things you probably want to look for in an adviser. First, look for a fiduciary, who is someone who puts your financial best interests ahead of their own and isn’t paid a commission for recommending or selling financial products. That reduces bias in their recommendations.
Specifically, you may want to use a fee-only CFP as they’re fiduciaries with extensive professional training and experience, says James Daniel, a certified financial planner at The Advisory Firm. “Qualified advisers should be a CFP at minimum and preferably have advanced qualifications for investment management such as a CFA,” says Daniel, adding that “you can locate advisers through associations such as the National Association of Personal Financial Advisors, LetsMakeAPlan.org or the CFA Institute.”
Looking for a new financial adviser? This free tool from SmartAsset can match you to a fiduciary adviser who may meet your needs.
If you don’t feel comfortable asking friends for recommendations, as you said, you may have to turn to the internet. We know you are skeptical but can be a good tool for finding someone. That said never simply opt for an adviser because you found them on the internet. Almost all have a website — the good ones and the bad ones — and there is a lot of due diligence that must be done when hiring one.
First, “consider interviewing at least three new advisers to determine personality fit, overall investment approach and fee comparison,” says Daniel. Ask them all this list of questions and do a background check to see if any disciplinary actions have been filed. Check the adviser’s registrations here. Plus, adds Mark Humphries, a certified financial planner at Sentinel Financial Planning, “FINRA has a tool that allows you to search for financial advisers by name and will provide information on work history and disciplinary information.”
Make sure, too, that asset location strategy is something the adviser addresses. “This means owning the tax appropriate investments in the most appropriate type of account,” says Primeau. “Even if you’re going to be positioned defensively, there are still opportunities to reduce taxes and fees. Also consider tax planning which can include Roth IRA conversions and qualified charitable distributions. While you may not receive the impact of the Roth IRA conversions, there’s a great chance your kids or grandkids will.”
It’s also important to check in with an adviser about insurance planning and estate planning. “This can include owning life insurance for potential estate tax ramifications or long-term insurance,” says Primeau.
What’s more, Ryan Haiss, a certified financial planner at Flynn Zito Capital Management, says “it’s crucial to feel comfortable with your adviser and to have confidence in their abilities to manage your portfolio according to your needs and risk tolerance. Take your time, gather information and trust your instincts when making your decision.”
What should I pay a financial adviser?
Regarding this new adviser’s fees, they are on the high side. Daniel says, “1% for accounts up to $1 million dollars is fairly common; however many firms offer breakpoints or discounts as your assets go above that level.” Also note that you can negotiate an adviser’s fees.
Have an issue with your current adviser or looking for a new one? Email picks@marketwatch.com.
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