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Thayer Partners Blog

5 Things Your Financial Advisor Is Doing Wrong

[fa icon="calendar"] Dec 14, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

5-Things-Your-Financial-Advisor-Is-Doing-Wrong.jpgToo often, Americans hand over all of their money to a financial advisor without doing their research. Not all financial advisors are alike. In fact, they’re all vastly different—with distinct fee structures, investment strategies, communication frequencies, money management skills, and licenses and registration.

Your financial advisor might not be giving you the services that you deserve.

Here are some warning signs that you have a bad advisor handling your money.

1. They Use Active Funds

If your advisor is investing in actively managed mutual funds, they’re probably wasting your money. Mutual funds have high management fees: you must pay a team of financial professionals to manage and service your account and make investment decisions on your behalf. On top of these management fees, you’ll also be paying operational costs, trading costs, taxes, and other hidden fees, such as compliance fees, account servicing charges, and marketing expenses. The extra one or two percent that you’re paying for active funds can end up costing you hundreds of thousands over the long term, which can prevent you from retiring early or retiring comfortably.

Plus, active funds are known to underperform the S&P market 50 to 90 percent of the time. So you’re ultimately paying for underperformance.

2. They Charge High Fees and Aren’t Transparent about It

Financial advisors have to make money too, but they get paid in a variety of ways. Most, however, get paid by charging you a percentage of your managed assets. Unfortunately, the percentages charged can vary drastically from advisor to advisor, and yours could be charging far too much for few services rendered or few assets managed.

If your financial advisor is charging more than one percent of your assets or is being shifty about how they get paid, it might be time to break off the relationship. 

3. They Don’t Offer Retirement Income Planning Services

The practice of financial planning covers a broad range of topics, not just investments. One of the most important services that your financial advisor should be offering you is retirement planning, because it’s so closely tied to your investments. Your retirement depends heavily on your investment income, and your investments are based largely on your retirement goals. For an advisor to prepare you properly for retirement, they need to have some retirement income planning experience and take your retirement goals into account so that they can show you how you are going to replace your paycheck in retirement.

4. They Put Their Interests Ahead of Your Own

Is your financial advisor a fiduciary? This is the only way to ensure that they will put your interests ahead of their own. Some financial advisors, the ones who are paid commissions on investment products, likely won’t have your best interests at heart. They’ll try to sell you financial products to earn a commission.

A fiduciary, on the other hand, is legally bound to avoid conflicts of interest when advising you and to put your interests first, so you can trust their advice and recommendations.

5. They Change Your Investment Strategies

You know that there’s no one-size-fits-all method to investing. Your investment strategies will be based on your unique personal circumstances, needs, and goals. A good advisor will take your savings targets, your retirement objectives, your risk tolerance, and your financial circumstances into account when working with you to create a long-term investment strategy.

Though investment strategies should be dynamic and change over time as your life and risk tolerance change, this is a decision that you need to make in consultation with your advisor. Your financial advisor should never change your agreed-upon investment strategies if your goals haven’t changed.

If your financial advisor is doing any of these five things, it might be time to fire them and shop around for a new one.

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Topics: Financial Services

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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