Is it Time to Break Up With Your Financial Advisor?

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3 Simple Questions You Should Ask Yourself During the COVID-19 Crisis

“Four or five times during their lifetimes, [investors will] see incredible opportunities probably in equity markets . . . [they] have to have the mental fortitude to jump in when most are jumping out.” – Warren Buffet

This article is intended to be an objective fact-based synopsis of three simple questions on how to evaluate financial advisors (broadly defined as asset managers) during this volatile time in the world financial markets. Its times like these where you truly get separate the good financial advisors from the bad ones. Here are the top three things that I would suggest you reflect on for the first in this series of evaluating your advisor.

#1 Did you get a personal phone call from you advisor?

The Corona Virus (COVID-19) has been the biggest hit to the investment markets in over a decade and your life saving are in the hands of your advisor – you deserve a phone call. If they didn’t take the time to call you and outline what is happening and what they are doing to proactively preserve your wealth, then they don’t value your relationship enough and they lack professional courtesy.

When you consider the annual fees that you pay for advice – this is totally unacceptable. If your advisor did not take the time to personally call you and check in regarding your financial stress (while still taking allowing your valued fees to trickle into his/her account this month) then its time you started talking to an advisor who respects and appreciates the fact you pay their monthly income.

#2 Did you advisor adjust your portfolio during this crisis?

When a crisis like this happens (as they do almost every decade) it is key that your advisor not only watch your holdings but also that they respond to changing market conditions. There is a portion of this market sell off that almost every advisor and their client lost in what I call unavoidable red ink. This is the first part of a market sell off that was broadly anticipated and essentially believed to be short lived. This is what I would call forgivable losses.

Then you must ask yourself the question, “What did my advisor do to mitigate the crisis once we knew this situation was not just brief market turmoil?”. If your advisor did not manage your downside risk by adjusting your portfolio to more bonds and away for sectors that very clear had elevated exposure you would be very much in your right to wonder whether they were fit for a career in money management. I would say they are not.

#3 Does your advisor have the ability to adjust your portfolio?

This is the most challenging question of the three, but in many ways the most relevant. Most ‘advisors’ who work in Canada’s big banks and who only sell mutual funds actually don’t have any discretion over the way the money is managed within the funds they recommend. In fact – even a huge number of advisors at the bank owned big brokerages effectively put their clients into managed money accounts that they themselves essentially have no control over. However, if your advisor is actually an accredited Portfolio Manager, then they may have the ability to adjust the individual holdings within your portfolio.

If you advisor is not a Portfolio Manager, or an Associate Portfolio Manger, then you may want to ask yourself why you are paying fees to someone who has less education when you can typically get this level of manager for the same cost or less. I am not suggesting there are not very competent advisors that don’t have their PM certification, I am only pointing out that if I was going to get surgery on my heart I wouldn’t get it from a general surgeon and I definitely wouldn’t allow someone to operate who had ‘self taught’ themselves medicine or heart surgery.

Factually, in many (in not most) cases you will pay less for the expertise of a Portfolio Manager than you would for the insight of bank-based advisors. Paying less money for a superior level of expertise and service is a tough thing to say no to.

Our partner Portfolio Management team has lost far less than the market during this crisis and offers integrated tax and financial planning as part of its low money management fees. To help people financially adjust to the COVID 19 crisis – they are offering complimentary portfolio reviews for anyone who has more than $100,000 in investment assets by referral only.

If you would like to get your complimentary portfolio review for a real industry expert then email me at calum@mortgagemanagement.ca or call me at 416-410-9905 x207 so I can make sure you get priority access to their services during this trying time.