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Thayer Partners Blog

Why a Good Financial Advisor Is a Mutual Fund Investor’s Best Friend

[fa icon="calendar"] Feb 22, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

Why_a_Good_Financial_Advisor_Is_a_Mutual_Fund_Investors_Best_Friend.jpgFinancial advisors are responsible for helping their clients make good financial decisions, including investment decisions. Though many Americans believe they are informed about investing, most still rely heavily on the knowledge and advice of their financial advisors when making important decisions.

Unfortunately, without a good financial advisor, many mutual fund investors end up making bad investments (so do those who invest in Exchange Traded Funds (ETFs), stocks and bonds for that matter). Studies show that investors underperform the average mutual fund investment by around 2.5% each year, according to Morningstar. They make emotional decisions, like selling in a panic or buying amid the elevated prices that accompany investor euphoria. This leads to performance gaps. Market meltdowns and turning points lead to acute underperformance of the market by investors.

As a highly trained, informed, and disciplined mutual fund investor, a good financial advisor can be your best friend—but a bad one can be your worst enemy. Here’s how to ensure that your financial advisor is your best friend.

Proven Reputation

Not all financial advisors are created equal. Some may not have the mutual fund knowledge, portfolio management skills or investment risk knowledge that you require, which is why reputation is key. Getting a strong referral from a business associate, friend, or family member is a good way to find the right advisor. You want an advisor whose company has a strong track record of success, not a hot-shot salesperson who seems too good to be true.

Being Proactive

The best financial advisors are proactive. They keep the lines of communication open at all times, and they update you on your financial issues as well as opportunities. They meet with you regularly and work with you. They don’t wait for you to call them. They take a proactive approach to helping you prepare for a successful retirement. They take the time to clearly explain their recommendations, and they don’t withhold information.

Keeping Calm

When a market crisis occurs, you might panic, so the last thing you need is an advisor who is panicking with you. You need someone who will be able to evaluate options, think clearly, and keep you calm, all the while not deviating from your well thought-out strategic investment plan. An advisor who is quick to make decisions, who is always pumping the latest hot stock pick, and who can’t keep calm may not be the right advisor for you.

Fear Management

When it comes to investments, sometimes you need help, and it’s important to have a reputable and knowledgeable financial advisor to rely on to avoid acting imprudently during maximum impact events and making investment mistakes.

A good financial advisor will take steps to prepare you for these events ahead of time, attempt to address the fear felt in real time when these impact events are occurring, and assure recovery. Fear management will be a priority in order to allow you to achieve success during crisis moments. This will help you avoid self-destructive investment behavior. Remember, it only takes one rash decision to unravel years of investment returns.

Evoking Trust and Confidence

When you get out of a meeting with your advisor, you should feel confident with his recommendations. You shouldn’t be uncertain, fearful, or nervous. If you do, trust your instincts, and get out of the relationship.

Significant Experience

You will be relying on your advisor when making big investment decisions. All legitimate financial advisors have significant experience in the financial services, experience with the markets, and some sort of industry-recognized certification. Verify your advisor’s experience and credentials before taking his investment advice—it’s your best protection.

Putting Your Needs First

As we mention before—and can’t help but state again—not all financial advisors are created equal. Some will only push products to meet quota or get the biggest commission. But the best ones will always put your financial needs first. They will present you with a range of strategies and service options and help you choose the best ones for your financial needs.



Topics: Financial Advisors

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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