Getting a fresh perspective on your finances can help you identify where a new direction may be warranted or provide assurance that you’re on the right path and working with the advisor that’s right for you. If you are working with a financial advisor, here are some questions to ask yourself.
It may seem obvious, but your advisor should be focused on you and what matters to you most. That means your advisor should take the time to fully understand your priorities, what keeps you up at night, and your reasons for investing. Only by doing that can your advisor help you choose investments that reflect your values, goals, and comfort level with risk. It all starts with having an open relationship and clear communication, so you are comfortable with your decisions and confident that your advisor is listening to you. How important is this relationship to your long-term success? Industry studies estimate that professional financial advice, coupled with assets being professionally managed, can add between 1.5% and 4% to investment returns over the long term, depending on the time period and how returns are calculated.
Of course, the way your money is invested is an important part of any long-term plan, but investments are only part of the story. In helping you decide how your money is invested, your advisor should be looking at many aspects of your financial life. After all, when it comes to planning, everything is connected. A financial plan can help you achieve long-term goals, like retirement, plan for unexpected shocks, like a job loss or a health event, and address concerns about future generations. By considering your full financial picture, your advisor can help you spot vulnerabilities in your plan and suggest steps to address them. Of course, any plan should be flexible enough to meet your changing needs and as your life evolves, so should your plan.
Working with an advisor who understands your priorities and preferences can help you grow and preserve your wealth. For instance, does your advisor help you access tax-smart investing techniques like tax-loss harvesting, deferment of capital gains, and strategic use of municipal bonds to help you keep more of what your investments earn? Over time, even a little tax savings each year has the potential to make a significant difference. And remember, these opportunities can arise throughout the year. Is your advisor on the lookout for these opportunities throughout the year or only at tax time? For many people, passing on wealth to heirs or donating to a beloved charity or cause is a crowning life achievement. It’s important to understand how your plan takes into consideration your family’s long-term needs, for the next generation and beyond. Your advisor should be a quarterback, providing guidance around your estate and charitable giving, and helping to establish your long-term legacy.
As most people know, life doesn’t always go according to plan and it’s critical to have an understanding of what could happen when you’re confronted with the unexpected. Your advisor should work with you to help you understand the types of risk involved with the way you’re invested and the impact of different market conditions on your portfolio. These kinds of conversations can help you develop a financial plan that balances your goals with your feelings about risk.
An important part of getting value from your advisor relationship is understanding what you’re paying. After all, fees can eat into returns, which over time can have a significant impact. But remember, it’s not just what you pay, but how fees are structured. Do your fees vary depending on the types of investments you own? Are there lower-cost alternatives that may offer similar returns? For example, bonds are an area where it’s important to understand what you’re paying. When you purchase individual bonds, firms generally charge a mark-up, which can vary significantly. With bond yields historically low, you’ll want to pay particular attention to transaction costs when building a bond portfolio because the mark-up can reduce your return. The same goes for other costs related to investing, such as commissions, expense ratios, and account fees. Knowing what you’re paying is critical. At Red Hawk Prosperity Partners, we have built our practice on offering the lowest fees possible while still providing the very best advice and service. If you are unsure about what your expenses are with your current advsor, contact us and we will break it down for you at no cost! To get started, contact us by clicking here.
