During the height of the financial crisis, a study complied by Prince & Associates showed that 81 percent of investors with $1 million or more planned to take money away from their adviser.
The study illustrated that the enormous loss of wealth during the Great Recession gave investors a peek into the poor quality of advice they had been getting and thus, sophisticated investors were taking their money elsewhere to put in more capable hands. Almost four years later, investors may still be wondering if they are getting good wealth-building advice or simply being sold products.
I want to arm you with the top seven warning signs that you could be getting bad advice:
• Never asked to see your tax return. Tax rates are set to skyrocket in a matter of months, so when’s the last time your adviser asked to review your tax return? If you want to take advantage of the tax laws for the informed, then your adviser should be monitoring your tax return every year. Maybe you’re missing out on valuable Roth conversion, missing deductions, or just simply paying too much in taxes. Your tax return is the heartbeat of your financial life. If it’s not being reviewed regularly, that’s a giant red flag.
• Portfolio contains only one type of investment. There isn’t a one-size-fits-all investment, so your portfolio shouldn’t be made up of just one type of investment (mutual funds as an example). Nothing screams “product salesman” as loudly as a single-product portfolio.
• No distribution strategy for your IRAs. For years, you’ve had a plan for putting money into IRAs and 401(k)s, but what’s your plan for when all that taxable money comes out? Anyone can come up with an investment plan for your pre-tax accounts, but it takes a real pro to make sure a distribution strategy is in place to limit the government’s take.
• Working with generalist. Does your adviser work with people of all ages and backgrounds? No one can be all things to all people and be really good at his/her job. Cardiologists, for example, get paid more than a family physician because they specialize. The same goes for wealth advisers. A specialist may cost more than a generalist, but you pay for what you get – specialized advice.
• Same old advice. Still hearing the same thing you heard back in 2008? “Hang in there, it will come back.” “It’s only a paper loss.” You won’t hear these excuses from a good, proactive adviser. If your adviser is paid only when your money is invested in the market, what else would you expect from him/her? Isn’t it time for a fresh take on wealth management?
• Hope as an income plan. Want to make sure you don’t run out of money in retirement? Then don’t trust the Wall Street way of taking 3-4 percent out each year in retirement. Advisers love to show you Monte Carlo simulations to prove that you shouldn’t run out of money in retirement. The key word here is “shouldn’t”. Shouldn’t implies hope, and hope is not a plan. Your income and lifestyle shouldn’t depend on the market; they should depend on math. Work with a specialist who builds an income plan using quantifiable mathematics.
• Weak inflation protection. With interest rates at historically low levels, combined with massive amounts of debt, inflation is on the horizon. If you’re near or in retirement, you will be negatively impacted the most. If your adviser hasn’t proactively met with you to discuss how to protect your wealth from inflation, that’s a warning sign.
These seven signs should be a used as a gauge to critique your current adviser or to utilize when interviewing a new adviser. Like most processes, we can become too comfortable with them over time, but as you approach your retirement years you most likely will need to do some re-adjusting. The current economic conditions that affect savings and retirement planning are very volatile; people need to make sure that they partner with a qualified adviser who ultimately has their best interest in mind.
• Lisa Bussenger, a licensed insurance representative and an investment adviser representative, is president and founder of Bussenger Insurance and Financial Services in Cary. She can be reached by calling 847-516-8062 or emailing firstname.lastname@example.org. Visit her website at www.bussengerinsurance.com.