Should you have helped your adult child with a down payment on her first home last year? Was buying that nascent cryptocurrency with your bonus the right financial move? Should you have stayed another four years at your well- compensated corporate job or taken early retirement?
As inflation continues to surge, interest rates spike and the majority of Americans become increasingly nervous about the state of the economy, people are understandably second guessing some of their previous spending, investing and lifestyle decisions like those above. Unsurprisingly, they are also taking a second look at those who help them make some of these decisions: their financial advisors.
In my experience, many people can expend significant amounts of energy (and a lot of time) feeling uncertain and ill at ease about whether their advisor is the right person to work with during tough economic times or if they should be looking for someone new.
But how can you gauge whether your advisor is doing a solid job as a potential recession looms?
Below is a list of questions designed with the goal for you to seek valuable information so you can see your situation and advise more clearly. Your answers may help to appropriate whether you should stay with your advisor or explore selecting a new one. Please remember that you are in a position of power and your financial confidence matters most!
1. Are you talking with your advisor regularly?
A thoughtful advisor should anticipate that, like most Americans right now, you might be anxious about today’s economic environment and how that might impact your investments and financial future.
One of my core credos is the less certainty my clients have about the economy, the more I talk with them. As such, your advisor should be proactively scheduling regular face-to-face meetings, whether in person or over a computer or phone screen on Zoom. They should be reaching out to you, not vice versa, and your meetings during these rocky times should be at the minimum quarterly.
Of course, your advisor might not have good news, which is exactly why they should be forthright with that information. At Van Leeuwen & Company, we know that the key to gaining and keeping our clients’ trust is based on seeking to ensure they are never surprised. Regular and open communication goes a long way to ensure you aren’t caught off guard.
2. Does your advisor limit their communications to email?
Money is very personal. Email may potentially be impersonal. Of course, email can be more efficient and easier for an advisor. This scalable, one-to-many communication can be faster for them and shield them from having to answer your questions in real time, which they may not be prepared for. And yes, in my opinion this is all about what’s in the advisor’s interest and not yours. This is why I believe virtual, or in-person meetings are so important; they give power back to the client. Email clearly serves a critical role, but advisors shouldn’t use it for everything.
3. Does your advisor clarify the economic times and environment we’re in?
Parsing the nuances of today’s economic news and how it fits into larger historical trends is something your advisor should want to discuss with you. In my opinion they should do so without using fancy financial jargon or referencing concepts that most non-financial professionals would not be familiar with. If your advisor loses you in these types of economic climate conversations at any point, that’s on them, not you.
It’s best to walk away from such conversations with your advisor feeling more informed. You should also feel that the information and insights they shared were customized for you.
4. Does your advisor cover the following items during your meetings?
During your meetings with your advisor, I believe in my opinion a number of items should be on the agenda during challenging economic times. Here’s an agenda checklist:
- Review the performance of your accounts against benchmarks. Usually, your advisor has selected market benchmarks for you. It’s important that you know how your accounts are performing in relation to them and where you stand.
- Determine if your returns are in the context of your overall financial plan. In light of the new economic environment and/or your changing risk tolerance,
you might need to make changes to your investment portfolio and financial plan, so you remain on track to pursue your long-term financial goals. In my opinion, your portfolio and plan should not be discarded! Just adjust as necessary. Read more about the steps to take to prepare your portfolio for a potential recession.
- Manage your tax planning opportunities. A volatile market like todays can present potential opportunity. If you sell a stock at a loss, many times in the right circumstances you can claim those losses on your taxes (also known as tax-loss harvesting) and then simultaneously buy another company in a similar space. That way, you can seek to benefit from a tax perspective while not losing market participation if there is a market rebound down the road. It might be worth discussing with your advisor.
- Review your asset allocation. A well-diversified portfolio is critical to lessen the risk of losses during a struggling economy and seek to protect your financial position. Review your allocation with your advisor to seek to ensure it meets your current risk tolerance. It would be beneficial to double check with your advisor to see if there are any transaction costs for the buy and sell of the securities.
- Receive documentation at or after the meeting. Whether it’s your updated financial statement or personal equity compensation profile, your advisor should strive to provide you with easy-to-understand reports in a manner that you prefer (e.g., more graphs, less text, or vice versa). These reports and documents should be detailed, and your advisor should seek to be fastidious about supplying them to you.
When taking a second look at your advisor, one of the most crucial questions to ask could be whether or not they are a fiduciary to their advisory clients. This means they are legally bound to provide advice or recommend investment products and services only in your best financial interest. You might be surprised how many big brand name investment firms are not fiduciaries. At Van Leeuwen & Company, we are proud fiduciaries to our advisory clients. We’re always here to help.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Asset allocation does not ensure a profit or protect against a loss.