THE FIRST STEP
DoesYour Advisor HaveYour Best Interests at Heart? When you review your portfolio, do you think your advisor is pro- moting his or her own agenda? Or, does your advisor recommend investments that are suited for you? If you understand your invest- ments, then the answer to this question will be easy. This also includes whether or not your advisor is following his or her own instincts, or if that person is basing recommendations on analysts’ predictions. While it’s important for your advisor to have a solid opinion of today’s market, your portfolio shouldn’t be solely based upon what one per- son thinks. Just because your advisor thinks it’s a good time to invest in commodities doesn’t mean that you should sink your entire retire- ment fund into that sector. Analysts’ predictions can be right, but they can also be wrong. Rather, your accounts should be based upon your age, risk tolerance level, and circumstances.
Is There a Lot of Activity inYour Accounts? Many advisors earn their money through commissions, not only when you purchase a product, but also when movements are made within your accounts.Your risk level should determine account rebal- ancing, not whatever is good for your advisor’s pocket. If you feel there are excess transactions in your account, talk to your advisor about it. The only transactions that occur in your account should be done at your discretion and with your input.
I meet with my clients at least twice per year. This doesn’t mean, though, that I am changing things in the portfolio at least twice a year. I rebalance their portfolios only if they need to be. Changing around your investments more than necessary defeats the purpose of investing, and may actually cause your portfolio to decrease in value.
What Kind of Investments AreYou Involved With? This relates to your understanding of your investments. Many bro- kers push certain products known as “proprietary products.” These are investments that are managed by the firm the advisor is affiliated with and, thus, will get paid more for. Take a look at your account statements. Do you see a lot of securities that all have the same name (i.e., the XYZ Value Fund and the XYZ Growth Potential Fund)? If so, ask your advisor why you are invested in these funds. They may