Buyer Beware: What Do You Get From Your Advisor?

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Although I have never been to Thailand, I have read that you cannot go more than a few feet in a typical town market without someone yelling, “same same.” It is the vendor’s way of telling you that what they offer is the same as everyone else, thus encouraging you to end your comparison shopping and buy from them.

Recently I spoke with a gentleman considering whether to become a client of our wealth management firm. He asked matter-of-factly how we are different from all the other hundreds of investment firms in the area. It seems that most of the public thinks of all financial firms as “same same,” yet they differ widely. Here are some areas that may distinguish one financial advisory firm from the next.

You Don’t Know What You Don’t Know

I cannot tell you the number of prospective clients who sit down to meet with us and haven’t yet considered the following three major questions.

1. What return do you need to meet your personal goals?

If your portfolio is making 20% per year, but it’s loaded with risky assets keeping you up at night, yet you only need to earn 5% per year to live your current lifestyle, what is the point of taking the extra risk? Is your plan to make as much money as possible or have the ideal lifestyle with the least risk? Shouldn’t the asset allocation (and desired return) also be altered if your goals change?

2. Is your portfolio performing suitably to help you meet your goals?

If you are not receiving performance reports every so often, how do you know if the current advisor is doing a good job of helping you meet your goals? What does this performance tell your likelihood of meeting your goals? Do you have a plan in place for tracking your goals?

3. How does your current advisor get paid, and what is the total cost of your relationship?

If you cannot determine how much your advisor is paid, isn’t it vital to ask to ensure the fees are reasonable? The US Department of Labor 401(k) fee website compared two investors who started at age 35 with a 401(k) balance of $25,000 and never contributed again. Both investors earned 7% per year before fees, but one paid a 0.5% annual fee, and the other paid a 1.5% annual fee for the investments. The ending value after 35 years would have been $227,000 for the investor who paid a 0.5% annual fee versus $163,000 for the investor who paid a 1.50% annual fee. The 1 percentage point difference in fees reduced the account balance at retirement by 28%! An advisor cannot control the market, but they do have some control over taxes and expenses.

Out of Sight, Out of Mind

We recognize that you have a lot going on, and you can’t always get around to completing your tasks. For example, perhaps you bought a life insurance policy years ago and have never revisited that decision to determine whether it still makes sense. Maybe you never changed your estate documents or IRA beneficiaries after a marriage or divorce. Or perhaps you have not revisited your 401(k) allocation since you first made the initial selection.

Is this something that your advisor addresses? Does your advisor know or want to know about your social security benefits, life insurance, or estate documents? Or have you simply been reduced, in your advisor’s eyes, to “a number?”

Certain age milestones should prompt you to confer with your financial expert to ensure that decisions are made responsibly, such as:

  1. A few months before age 62, we suggest you sit down and go through a social security analysis to determine the optimal age for beginning to collect benefits.
  2. A few months before age 65, we recommend you research and apply for Medicare (as delaying will likely lead to penalties, based on the current Medicare rules).
  3. At age 73 (or earlier for inherited IRAs) and each year after that, you need to decide the best approach in taking Required Minimum Distributions from your IRA.

Tax Brackets

Knowing your tax bracket and working with your accountant can help you achieve the highest after-tax return on your bonds.

Tax Sheltering

Placing certain assets to take advantage of IRAs, where you do not pay taxes on income and gains, can help boost your overall return.

Capital Gain Distributions and Tax Losses

You need to watch out for mutual fund capital gain distributions at the end of the year to avoid getting hit with a large tax bill. In addition, one of the ways to lower your tax bill is to take advantage of losses in your account once they occur.


Keeping your asset allocation consistent with your goals by rebalancing between stocks and bonds is vital. This may also lead to higher risk-adjusted portfolio returns over time.

The Devil Is in the Details

At the end of the day, it will benefit you to find a firm that puts sufficient time, effort, and thought into these details. The plan enacted on Day 1 should not be “buy and hold” (often described as “set it and forget it”) but rather “buy and manage,” with changes based on research, long-term projections, and unique circumstances. I assure you that all financial firms are not “same same.” As the buyer, it is incumbent upon you to ask the right questions before choosing the firm that’s best for you.

Feel free to contact Brett Horowitz with any questions by phone (305) 448-8882 ext. 216 or email: [email protected]

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