“One can have a dream, baby … Two can make a dream so real.” — from “It Takes Two,” as performed by Marvin Gaye and Kim Weston
Part Three in a Three-Part Series
So you’re seriously considering a relationship with a fiduciary investment advisory firm. Let’s examine your potential financial needs, in addition to portfolio management.
You’ll likely want a retirement plan that estimates the probability of meeting your financial goals based on reasonable investment return expectations. And what about estate planning? Will you be selling a business or expecting some other type of liquidity event? Do you need a business valuation performed to sell that business? Do you want assistance establishing and managing a trust for children or heirs who might need a little extra financial assistance? Will you need tax planning and tax preparation? Tell your advisor and ask how many of those functions they can handle for you. The more services they provide in-house, the more simplified your financial life becomes.
Now let’s consider portfolio performance. No advisor is a miracle worker and all are constrained by the parameters of the economic environment. That said, your advisor may be even more valuable in non-accommodative markets or low-return environments.
If you expect 15% returns annually, or if the advisor promises them, the relationship will disappoint. The better advisors tend to underestimate and over deliver. Clients with realistic long-term expectations are far more likely to reach their goals than those that want to hop from strategy to strategy based on what’s worked in the last week.
"What is our time horizon for judging the efficacy of our investment performance?”
If you're looking for home run results in three to six months, investing in capital markets may not be for you. I believe five years is the optimal time horizon for judging investment performance. If you desire income, a seasoned advisor can often provide an estimate or range of what you can expect annually in stock dividends and bond coupons.
Plan to annualize your investment returns in order to objectively judge your portfolio’s progress. If after five years, net of all fees, you’ve been in the black four of those and your average annual rate of return has been about as expected, most folks would consider this successful.
“Do you charge separately for services other than portfolio management?"
Some advisors charge only one fee and offer all their services for that cost; others charge a fee to manage your assets, then charge separately for other services like financial planning.
"Will you begin trading in my account immediately or will you wait for an advantageous entry point?"
If you’re planning on a long-term relationship with an investment manager, giving them a couple of months to implement their strategy can allow them to find a good opportunity to put your money to work as prudently as possible.
“How often will we meet to discuss my portfolio?”
Annual and semi-annual reviews are most common, but ask your advisor if you can meet with them about ad hoc issues that arise.
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.