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Next Avenue: 5 things you shouldn’t assume about your investment adviser

This article is reprinted by permission from NextAvenue.org.

Financial professionals are paid to be the experts, but sometimes what they do not know – or do not reveal – has more of an impact on your money. When the market is going gang busters like the last two years, you would expect solid returns, but look beyond the returns on your investments. Pay attention by asking more questions about their advice and recommendations. 

Here are five details to understand and discuss with your investment adviser:

1They may not be the person managing your assets. Find out who is watching the day-to-day investing details.

Do not assume your investment adviser is acting alone, most likely they are not. They are the front person who services your account and knows your personal financial situation. They can advise how to build your investments for a sustainable retirement, remind you to take your Required Minimum Distribution (RMD), and guide you in your transition to retirement. 

Chartered Financial Analysts (CFA) are trained and licensed to manage investments. They work for investment firms of all sizes to evaluate the stock market. A mutual fund may have a team of CFAs to do the investing for you. Meeting them may not be necessary, but do understand their experience. 

Your adviser should know the team that is investing your money and have access to them if they, or you, need more information.

2. Their recommendations may include other factors. 

Their compensation may influence their advice, especially when it comes to charitable donations and cash. If your investment professional is earning an annual fee, they have a vested interest in growing your money.

If they work for a larger firm, they may be influenced by commissions, promotions or other internal corporate factors. They still may make a good recommendation but not the best one for you. Check with them to see if they are a fiduciary, who are required always to act in your best interest.

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Understand where there may be conflicts. For example, if you want to give a large portion of money away to charity, their income will be impacted negatively.

Another challenge is regarding cash. We all know cash does not earn much interest, but everyone needs to keep some available. If you hold $50,000 in your advised account for that purpose, you may be getting charged an annual fee on those holdings. Instead, keep your cash needs in the local bank and save the fee, while getting FDIC insurance.

Also see: Should I invest in an IPO?

3. Their expertise may be limited.

Like the medical profession, the financial professionals have specialties, such as tax issues, annuities or insurance. If you are looking for the information on the best way to save taxes, consult an accountant along with your investment professional. They each have different perspectives providing the best solution for you.

Use the same approach when it comes to buying insurance and annuities, where commissions are involved. There are a range of products, so if your investment adviser only sells from one company, get an alternative suggestion. Comparing for yourself could save you money and provide better benefits. Or hire an objective financial planner, even if you have to pay them an hourly fee.

Remember your investment adviser does just that, investments. If it is not their area of concentration, you will be best served by the team approach. 

4. They may not be the right size for you.

If your portfolio is smaller than their average client, you may not get the attention you desire. If you are their largest client, the adviser’s knowledge and experience may not match your needs. Ask more than how many clients they have. Find out the average size of their client’s portfolio because you want to know they have other clients like you.

Read: Should retirees invest in emerging markets?

Tax strategies and investment options vary with the more assets you have. Sticking with your current planner because you like or are comfortable with them may make sense only if this is sensible for your portfolio. Or diversify by having a second or third investment portfolio with different advisers, with each adviser providing their investment philosophy and specialized expertise.

For example, an inheritance may already be invested wisely, so no need to move it to your investment adviser’s firm. Bottom line: Be aware you may outgrow your investment adviser or need to find a better fit.

5. Know your adviser’s background.

As Consumer Reports tells the rest of the story on products, Financial Industry Regulatory Authority (FINRA) provides background on your financial adviser or potential adviser. This is an independent regulator and you can do your research free at BrokerCheck. At this FINRA site, you can see your broker’s professional history, education and licenses and most important, if they have had any legal challenges against them.

The wealth of information is meant to be a way that the public can source out the right person for them – qualified, legitimate and problem free.

When a friend asked me for advice about the two financial professionals she had met with, I directed her to BrokerCheck. Though they had seemed experienced and knowledgeable to her, what she discovered was informative. One of them had worked for three different companies in the past four years, too many for her taste, and the other more disturbingly had two legal cases against him for presenting misleading information. 

Also read: Three signs you’re ready to retire

You need to be comfortable with your adviser but also aware of the limitations of their work and experience. You must know more than they are a “nice person” and are creating a return on your portfolio. Stay involved enough to ask questions. Trusting enough to be open to suggestions while reviewing objectively.

It is your money and your responsibility. 

Christine D. Moriarty, CFP, has over 25 years of experience coaching individuals, couples and business owners on their finances. Her focus has been the intersection of emotions, behavior and money. She is living her dream in Vermont and delights in sitting down with a cup of Irish tea and a good book. Find more at Moneypeace.

This article is reprinted by permission from NextAvenue.org, © 2022 Twin Cities Public Television, Inc. All rights reserved.

More from Next Avenue:

The 3 Investing Questions Retirees Need to Ask

Are You and Your Millennial Kids Investing Wrong?

Select Investments Best-Served for Your Retirement

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