It’s the job of financial advisors and wealth managers to create the right asset mix for clients, so whether you have the kind of advisor who’s constantly updating your holdings or one who sets it and forgets it, there will be a time when your money manager comes to you with investment recommendations. But when you’re given an investment suggestion, how can you decide if it’s a good idea?
Make sure you’re No. 1
As a client you should be confident that your best interests are considered. That means thinking about whether the investment takes your risk tolerance into account, and whether it makes sense within your existing portfolio.
While the experience, track record and knowledge of the advisor are key considerations, you should also opt for someone you trust and like – and who ideally comes with a referral from a qualified source, such as an accountant or bank representative.
Does it add value?
There’s no point collecting stocks or bonds just for the sake of doing something. If you’re adding to your portfolio, you need to think about why. Does the proposed investment fit within the asset allocation plan you and your advisor have previously discussed? Is your advisor clear on your goals, or is it time to have a conversation about the type of investments you’re comfortable with and the ones that are required to retire comfortably given your age and preferences? Risk tolerance, asset allocation, age, goals and suitability should always be at the forefront of any recommendation.
Consider how the advisor is being compensated
Today, more investment accounts are managed for a fee based on the value of the assets under management (AUM). Advisors are compensated for new issue recommendations on top of the annual fee they receive on AUM, a consideration investors should think about when looking at the recommendation. Investors are more cognizant of fees and investment theory than they’ve been in the past, and fees, management costs and transparency are becoming an increasingly large part of the equation. But despite a push for increased disclosure, certain fee structures still aren’t obvious unless the client reads the prospective, so it’s always important to read the fine print.
The investment industry is like any other – there are some great people who want to help their clients make the most of their nest eggs, and some that may not be able (or willing) to always do what’s best, so a little due diligence on the part of investors can go a long way toward reaching your goals.