Saturday, August 29, 2015

6 Steps to Finding An Investment Advisor Who Works For You

Once a person has decided that they need some help with investment management (see our earlier post Why Hire an Investment Advisor, and Do I Really Need One), the next step is the search process to find a good investment advisor. We have broken the process down into six steps:

1) Find a fiduciary: A Fiduciary is a person legally obligated to put your interests ahead of their own. Doctors are fiduciaries. Attorneys are fiduciaries. For some reason, stock brokers are not fiduciaries...they are able to avoid the higher legal standard of fiduciary. However, Registered Investment Advisors are fiduciaries. Check the website of the group you are considering. If, at the bottom of the website you see (usually in very small print) that says "Securities offered by XYZ corporation" or "Member of FINRA/SIPC" etc...then you are looking at a stock broker, not a fiduciary. Also, just ask the person you are considering hiring. It's an easy question and an easy answer. Start by Googling "Registered Investment Advisors."

2) Check out the Investment Advisors legal history. The SEC offers a wonderful site called "Investment Advisor Search" which offers the ability to search by a person's name or company. If the person isn't listed there, he or she is not an investment advisor.

3) Make a phone call or appointment once you have found some fiduciary Registered Investment Advisors, and ask about their years in the business, their investment philosophy, their relationship minimums, and what sort of fee structure they offer.

4) If possible, schedule a face to face interview with your potential Registered Investment Advisor. Personality fit and trust is an important component to the relationship and you want to see what sort of chemistry you have. Bring your spouse or partner.

5) Ask where the Registered Investment Advisor custodies your assets. Stocks, bonds, and mutual funds must be kept somewhere. The most popular custodians are Charles Schwab and Fidelity.

6) Ask the Registered Investment Advisor about how they would work with you and whether they have clients similar to you. If you are a retiree, does this Registered Investment Advisor work with other retirees? Make sure your situation is similar to their typical client situation.

Once you have decided upon someone to hire, the process is quite simple. Usually, your assets transfer to the new custodian and your new advisor begins to go to work immediately.




Friday, August 21, 2015

What to do When the Stock Market Falls 1000 Points

The U.S. stock market fell dramatically this week. The S&P 500 is now officially down 4.3% for the year. However, bond prices are up rather dramatically and have dampened some of that sting for those individuals who always keep a balance of stocks and bonds.

What is a person to do that maintains a 60% stock, 40% bond portfolio? Check your ratios! Go to your accounts this weekend, run some numbers, and prepare to rebalance things a bit. On a portfolio that is supposed to be 60% stocks and 40% bonds, you may find that you are closer to 50/50. What does maintaining your ratios force you to do after a week like we've had? Well, most likely you'll be selling some of your bond positions (which are expensive anyway due to this week's rally in prices) and buying more on the equity side (which are cheap due to the 1000 point loss we've seen recently).

This is not the time to let your portfolio get "all the eggs in one basket." Check your ratios and rebalance if necessary.

Saturday, August 15, 2015

Why Hire an Investment Advisor, and Do I Really Need One?

As people move into their later 20s and 30s, the need for some sort of financial oversight and management often becomes apparent. Questions regarding 401k diversification, the size of a mortgage that one can sensibly obtain, Roth versus Traditional IRA, and how to start saving money for a newborn come up. Along with this, one's work often becomes more demanding, and there is less time to spend on one's investments.

Keep in mind that everyone has the ability to create a low cost, diversified portfolio on his or her own. If a person rebalances, keeps good diversification, takes tax losses when possible, and watches the internal fees of the vehicles used, that person most certainly does not need investment management. Asset classes can be confusing (see the below chart, courtesy of Blackrock), but they are certainly not impossible to understand.

The question one needs to ask one's self is "Can I do this on my own and WILL I do this on my own?" If the answer to either question is no, then one needs to consider an investment manager.

Managers will cost between 1/2% and 1% on average. That means that all things being equal, your returns, when using a manager will be between 1/2% and 1% less than if you did everything on your own, when you should do it, and in the way that makes the most sense. Often, the fee a low cost investment manager charges will be more than made up for by the diligence that manager gives to the portfolio. Again, if a person can do this on her own and WILL do it on her own, she should skip hiring a manager and save herself the fee.

Once the decision has been made to hire an investment manager, the next step is finding an investment manager. Watch for our next article, "How to Find an Investment Advisor Who Works For You."