Interviewing financial advisors for this very vital role in your life can be daunting. Plus, the 21st century brings with it new threats to your finances, so your “toolbox” of questions needs to be updated as well. You are trying to achieve many objectives, such as help to plan for key life events and investing your hard earned assets in the most appropriate way. You not only need assistance in achieving your goals but you want to do so in a fashion that represents who you are. You also want peace of mind and time so you can go off and do the things that are most enjoyable to you, which encompasses the majority of your focus and attention.
Despite such a daunting and important task, I have been somewhat surprised over the years at how few questions are asked of me, and of the ones that are asked, how many of them are not relevant to whether I am up to the task to serve someone’s family. I’m a really nice guy, but this isn’t a popularity contest! You need to find someone who you think you can work with, hopefully enjoy working with and most importantly, is competent, trustworthy, transparent, open and honest!
With that, let me share with you the good stuff! The key points of information you will need to know in order to feel good about the financial advisor or financial planner you choose. I will even share a question that is always asked which you should remove from your tool box. My list starts from general qualifiers and gets more specific. If they don’t meet some of the first objectives, you can cut the meeting short and move on to the next candidate.
The above list covers the most important areas in finding a qualified candidate to help you reach your goals. While no way of doing business or credential guarantees honesty and ethics, it will go a long way to helping you weed out those who shouldn’t even be in the conversation.
In closing, I should mention that there is one question that an advisor doesn’t want to hear and may cause them to walk away if you place great importance on it. The main culprit is asking for their performance numbers or returns. While seemingly valid on the surface, if you think a great advisor beats or outperforms the market on a regular basis and that is why you are hiring them, you will be disappointed eventually 100% of the time. While no advisor wants to under-perform ever, your returns are typically going to mirror your risk level over time. Market returns are not a controllable event and all an advisor can do is offer a range of potential returns, especially if they use some of the newer risk software. Be aware that the advisor is interviewing you at the same time. If they see little focus on planning, the big picture and willingness to work with them on the areas they can control, they will likely not want to start a relationship that will be short term focused and market return based.
Roy Larsen, CFP®, AAMS® is a fee only Certified Financial Planner ™ practitioner and independent fiduciary. Roy in 2013, 2014 and 2015 was awarded Atlanta Magazine’s Top Wealth Managers in Atlanta, 5 Star Professional. Larsen Wealth Management, a registered investment advisory firm, provides comprehensive planning, investment management and tools which enables their clients to be better prepared while organizing and simplifying their entire financial life. Larsen Wealth Management is based outside of Atlanta, Georgia but serves clients throughout the United States. You may contact Roy with questions or comments at email@example.com, www.investinretirement.net, 678-456-8138 (O), 706-429-3388 (C)
Provided by Roy Larsen, CFP®, AAMS®
Beware those four little words. They are perhaps the most dangerous words an investor can believe in. If you believe “this time is different,” you are mentally positioning yourself to exit the stock market and make impulsive, short-sighted decisions with your money. This is the belief that has made too many investors miss out on the best market days and scramble to catch up with Wall Street recoveries.
Stock market investing is a long-term proposition – which is true for most forms of investing. Any form of long-range investing demands a certain temperament. You must be patient, you must be dedicated to realizing your objectives, and you can’t let short-term headlines deter you from your long-term quest.
If stocks correct or the bulls run away, keep some perspective and remember how things have played out through some of the roughest stretches in recent market history.
In 2008, many people believed the market would never recover. The Dow dropped 33.84% that year, the third-worst year in its history. That fall, it lost 500 points or more on seven different trading days. Some prominent talking heads and financial prognosticators saw the sky falling: they urged investors to pull every dollar out of stocks, and some said the only sensible move was to put all your money in gold. It wasn’t unusual to visit your favorite financial website and see a “Dow 3,000!” pay-per-click doomsday ad in the margin.1
The message being shouted was: “This time is different.” Forget a lost decade, it would be a lost generation – it would take the Dow 10 or maybe 20 years to get back to where it was again, the naysayers warned. Instead it took less than six: the index closed at 14,253.77 on March 5, 2013 to top the 2007 peak and went north from there. The bear market everyone thought was “the end” for Wall Street lasted but 17 months.2,3
Where is the Dow today compared to fall 2008? Where are the S&P 500, the Nasdaq, the Russell 2000 compared to back then? And how has gold fared in the last few years? While the Federal Reserve has played a significant role in this long bull run, record corporate profits have played a major role as well.
The stock market has seen remarkable ascents through the years. From 1982-87, the S&P 500 gained more than 300%. The 1990s brought a 9½-year stretch in which the S&P rose more than 500%.2
A recovery from a Wall Street downturn usually doesn’t take that long. The bear market of 1987 – the one that came with Black Monday, the worst trading day in modern Wall Street history – was over in three months. The bursting of the dot-com bubble set off another bear market in 2000 that lasted a comparatively long 30 months – definitely endurable for an investor focused on long-term goals.3
What happens when investors believe those four little words? They panic. They sell. If they are mostly or wholly out of equities when the bulls come storming back, they run the risk of missing the best market days.
We’re looking at a turbulent stock market right now. This is the time for patience. Withdrawing money from a retirement savings account (and the investment funds within it) might feel rational in the short term, but it can be hazardous for the long term – especially since many Americans haven’t saved enough for retirement to start with. A recession is a few quarters long, not the length of your retirement; a bear market may right itself faster than presumed, and you want to be invested in equities when it happens. If you have questions about your money when jitters hit the market, turn to the financial advisor you count on as a resource.
Roy Larsen may be reached at 678-456-8138 or firstname.lastname@example.org.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - djaverages.com/?go=industrial-milestones [10/7/14]
2 - nj.com/business/index.ssf/2013/03/dow_hits_new_record_regaining.html [3/5/13]
3 - nbcnews.com/id/37740147/ns/business-stocks_and_economy/t/historic-bear-markets/#.VDSESBbgVUI [10/7/14]
When you invest for growth, you are typically seeking capital appreciation over the long term. You will likely choose investments that you believe will exhibit a faster-than-average increase in share price over the coming years. Growth stocks have the potential to outperform slower-growing investments, such as income stocks, because gains are generally reinvested in the company to achieve further growth rather than distributed to shareholders as a dividend. Growth stocks can be volatile. One way to minimize the impact of that volatility on your portfolio is to purchase shares of a growth mutual fund. You'll enjoy instant diversification (though diversification alone cannot guarantee a profit or ensure against a loss). And an actively-managed mutual fund also offers professional management expertise.
A value investor seeks out bargains, and chooses investments that have low prices in relation to such factors as earnings, sales, net current assets, and the book value of the When you invest for growth, you are typically seeking capital appreciation over the long term. You will likely choose investments that you believe will exhibit a faster-than-average increase in share price over the coming years. Growth stocks have the potential to outperform slower-growing investments, such as income stocks, because gains are generally reinvested in the company to achieve further growth rather than distributed to shareholders as a dividend. Growth stocks can be volatile. One way to minimize the impact of that volatility on your portfolio is to purchase shares of a growth mutual fund. You'll enjoy instant diversification (though diversification alone cannot guarantee a profit or ensure against a loss). And an actively-managed mutual fund also offers professional management expertise.
A value investor seeks out bargains, and chooses investments that have low prices in relation to such factors as earnings, sales, net current assets, and the book value of the issuing companies. A value investor might reject a popular blue chip stock because the price per share is too high, even though the issuing company is stable and has a record of steady growth. Instead, the value investor seeks to buy stock of a solid company that is temporarily out of favor or bargain priced for some other reason. In doing so, the value investor predicts that the share price will eventually return to a higher level when the stock comes back into favor, and the market drives the stock price back up. A mutual fund manager may specialize in growth investing, value investing, or some combination.
Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which are included in the prospectus available from the fund. Read it carefully before investing.
Roy Larsen, CFP®, AAMS® is a CERTIFIED FINANCIAL PLANNER™ practitioner, financial advisor and wealth manager. Roy is President and CCO of Larsen Wealth Management, LLC, a Fee-Only Registered Investment Advisory firm in Cumming, Georgia. Roy is an expert in successful retirement living and specializes in holistically managing the multiple planning and investing issues surrounding the receipt of a large lump sum. Roy Larsen, CFP®, AAMS® is available in all 50 States. He can be reached for comment at 678-456-8138,email@example.com or www.investinretirement.net
In some cases, investors choose to authorize a money manager to make the actual investing decisions for their portfolio rather than simply make recommendations. In such cases, it can be valuable to have a mechanism for making sure in advance that investor and manager are on the same page.
An investment policy statement (IPS) is designed to ensure that both sides understand the scope of the manager's decision-making authority and the guidelines on which investment decisions will be based. The portfolio's owner can take comfort in knowing that the investment manager has a clear sense of what's expected, while the manager can employ his or her best judgment and experience in following the IPS guidelines.
An investment policy statement also can be used by an investment committee--for example, officials responsible for managing the assets of a nonprofit organization, pension fund, or university endowment--to spell out the policies underlying the committee's investment decisions. Such a statement can increase transparency and improve consistency in case of turnover in committee membership.
Though an investment policy statement can be as simple or as complex as the parties involved want it to be, here are a few elements that are likely to appear.
Roles and responsibilities
An IPS generally spells out which accounts are covered by the policy statement and establishes procedures to be followed--for example, how subsequent modifications to the IPS itself will be handled. It also may set forth a process for ongoing monitoring of the portfolio, such as how often the investment manager will report on performance. In the case of an institutional investor, the IPS may specify who will be responsible for reviewing those reports and communicating with the investment manager, and which party is responsible for documenting compliance with any regulatory requirements.
Investment objectives and/or philosophy
An IPS generally will spell out the portfolio owner's goals and objectives. For example, it might state that the portfolio's primary goal is providing a certain level of income annually, or pursuing maximum growth; it also might specify how much volatility the owner is comfortable with. Such guidelines will affect the portfolio's asset allocation and the manager's selection of individual investments, though there obviously is no guarantee that a portfolio might not occasionally exceed the agreed-upon volatility guidelines or fail to achieve the desired goal.
Asset allocation and criteria for investment selection
Based on the above factors, an IPS may specify asset classes that are or are not appropriate for the portfolio. For example, it might allow investments in both individual bonds and bond funds, but exclude investments in the sovereign bonds of emerging markets. As a general rule, an IPS does not name specific securities for either inclusion or exclusion, permitting the manager to select individual securities within the approved asset classes. However, there may be exceptions--for example, when an investor already has a concentrated stock position. An investor who holds a large number of shares accumulated by exercising stock options granted as part of an employee compensation program might want to ensure that those holdings are not increased.
An IPS may or may not spell out a general asset allocation for a portfolio or set targeted ranges for each permitted asset class; for example, it might permit a portfolio's allocation to equities to range from 50% to 70%. It also may specify how often or under what circumstances the portfolio will be rebalanced to maintain a targeted asset allocation; set liquidity and marketability requirements; outline any specific cash reserves needed; and encourage or prohibit tax management strategies.
Criteria for gauging performance
A portfolio that doesn't produce the return necessary to meet its owner's financial and legal obligations--for example, pension payments owed by a pension fund--has even bigger problems than a portfolio that falls short of providing the return hoped for by an individual owner. That's why an IPS will often include expected performance criteria, such as a targeted percentage return or a requirement that the portfolio's assets match or exceed the performance of one or more appropriate benchmark indices.
As you can see, an IPS can be as detailed or as general as the parties involved feel is appropriate. Your financial professional can help you explore whether an IPS is appropriate for your individual situation.
Roy Larsen, CFP®, AAMS is a CERTIFIED FINANCIAL PLANNER™ practitioner, financial advisor and investment manager. Roy is the owner of Larsen Wealth Management, LLC in Cumming, Georgia. Roy is an expert in successful retirement living and specializes in holistically managing the multiple planning and investing issues surrounding the receipt of a large lump sum. Roy currently works with clients in all 50 States. Roy can be reached for comment at 678-456-8138 or firstname.lastname@example.org or www.investinretirement.net
Roy Larsen is a Certified Financial Planner™ practitioner and Fee Only Wealth Manager who resides outside of Atlanta, Georgia.
Roy's Financial Blog contains articles on multiple financial life events as well as his favorite questions from he receives from around the country as a an expert panel member for Investopedia's Advisor Insights.