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How can I tell if my financial planner makes a good investment on my behalf?

Feb 09, 2012 by Declan from Cedar Rapids, IA in  |  Flag
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At my firm, we believe returns alone are not the only item to be considered. If an advisor gets you an 8% return, on the surface that might sound good, but more needs to go into the evaluation. If he got you 8% from a very safe bond fund, that is very good, but if he got you 8% from a fund that invests in China, and typical returns in China that year are 20%, he has not done so good. We try to have clients focus on what their lifetime financial needs are, and then backfill how much risk needs to be taken to feel we can safely achieve those goals. After all, we find more folks are interested in knowing whether or not they can eat when they are 90 years old, than whether a certain percentage target was reached in any given year. Your planner should first and foremost be discussing your financial needs. Then when it comes to the assets that are there to assure your needs are met, he should be able to clearly articulate the portfolio strategy (what method was used to select investments), the selection process should be consistent with a written plan he’s given you known as an Investment Policy Statement (the written version of the strategy), and he should be able to demonstrate the amount of risk the portfolio is assuming in order to achieve the desired results. Hope this helps. If you want to get in touch, I’d be happy to offer an independent evaluation for you.

Comment   |  Flag   |  Feb 09, 2012 from East Dundee, IL

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In addition to what David said, Declan, there may not be an immediate payoff to the investments made for you by your planner. I recommend almost the same investments I do now as I did in 2007. Many people who became new clients in 2007 think they are in "bad investments". If I used the exact same investments in 2009, and for the most part I did, I look like a genius instead of an idiot because those investments went up immediately! How can the same investments be good and bad? Well they aren’t, it was not the investments chosen rather the state of the markets.

Other questions to ask are what is your investment process , are the investments diversified, what are the total expenses that are charged by the investment companies etc. Is the advisor a goal or return oriented money manager? Returns are not a controllable issue they happen when they happen. Goals, such as saving enough when you are young and not withdrawing to much when you are older are ultimately more important then investment return

Comment   |  Flag   |  Feb 09, 2012 from Cleveland, OH

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Ryan Level 19

Declan, you are getting excellent advice from Jeff and David. Another item is to ask the advisor specifically whey he or she is recommending what they are and what other options they have considered. You might uncover additional merit to what is suggested or find out more information that helps you decide what is indeed in your best interest.

Comment   |  Flag   |  Feb 09, 2012 from Gettysburg, PA

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These are all great responses, but I would suggest starting more simply. Start by asking yourself these questions: 1) Are my needs being met by my investment accounts? 2) Have I been overly-surprised when I opened a statement, either good or bad? 3) Do I understand what I am invested in and why it "should" meet my needs(though likely not guaranteed)? If the answer to #1 is YES, then you are likely pretty good if you have been with the planner for a while. If you answered NO to more than one of the questions, I would suggest asking for a meeting to get a better understanding of the recommendation and also seek a second opinion. It is good to be curious and pragmatic, but do not be irrational. Many investors are in investments that they do not "like" because their personal situation requires investments with certain benefits(and unfortunately certain limitations, too).

Comment   |  Flag   |  Apr 12, 2012 from Columbus, GA

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