Monroe Bank & Trust: Are you meeting your financial goals or your advisors?

Growth is good. Everybody wants growth, children want to get older, small businesses want to become bigger and more successful, and most certainly you want your investment portfolio to grow. Financial advisors are no different, they too have goals they want to achieve (more clients, more assets under management), motivated by any number of factors. The issue for you, as investor and client, becomes growth at what cost. Some advisors are so focused on their own goals that they take on every investor that comes through their door regardless of whether they are a good fit or not, like speed-dating on steroids.

The Client/Advisor relationship is one of the most important in a person’s life. As important, if not more than choosing a doctor or a spouse. When choosing an advisor, it is imperative to make sure you are a good fit for each other. Similar to choosing a spouse, you need to have common beliefs, goals, and a desire to build something together. The last thing you want is to be just more AUM (assets under management) to the advisor. It needs to be a partnership. You and your advisor should be sitting on the same side of the table. This is not a onetime purchase type of engagement, and it’s certainly not speed-dating. You should be looking for a long term symbiotic relationship.

The recent changes to Department of Labor rules (you’ll hear this referenced as DOL rules) have shone a bright light on how the financial services industry has historically operated. Particularly in the area of the Fiduciary Standard vs. Suitability Standard.  We could spend hours trying to explain the pages upon pages of legal jargon, but at the end of the day it boils down to one thing, whether you and your advisor are working toward the same goals with YOUR not THEIR best interest at heart.

A lot of investors choose an advisor based solely on historical returns. Making such an important decision, based almost exclusively on this type of criteria often times dooms the relationship before it really even has a chance to begin. There are a myriad of reasons for this beyond the not-so insignificant fact that historical returns do not predict future results (a phrase indelibly burned into my brain after 20 years in the industry).  There are other important factors that you should consider, including how holistically they view financial advice (is it only investments or do insurance, succession & estate planning, taxes and other factors come into play), how collaboratively do they work (will they jockey for position with other investment advisors, attorneys and accountants or work hand-in-hand to achieve the best result for you), and of course how their investment philosophy aligns with yours.

The most important factor is investment philosophy. This is defined as a set of guiding principles that drive the investment making decision process. Your investment philosophy represents the sum of your core beliefs.  For investing this includes things like long-term vs short-term focus, trading a lot or a little, comfort with certain asset classes like small/medium/large/international stocks or bonds, degree of capital preservation and more.  If these are at odds with that of your advisor, no amount of return or reasonableness of fees will produce a satisfying long term relationship. Having a different investment philosophy than your advisor would be similar to one spouse wanting to have five children and the other not wanting any children at all. Sadly the results will most likely be the same, an unsatisfying relationship that ultimately ends in a split.

You need to understand a potential advisors investment philosophy. If they don’t bring it up, ask. If they cannot simply and succinctly explain it, that should be a red flag. Are they tactical or strategic? Do they try to exploit short-term mispricing or are they long-term focused? If you are the type of investor that follows the financial markets pundits and watches the money channels often, then a long term, strategic, index focused advisor might not be a good fit for you despite performance or fees in relation to other advisors you are considering. Conversely, if you have a “slow and steady wins the race” mentality, you may be uncomfortable seeing many individual stocks frequently moving in and out of your portfolio.

The important thing to realize is there are many different investment philosophies and styles. Most of them are good and valid, but there is no definitive solution that works for everybody. This is not a one size fits all type of situation. You need to find an advisor that is a good fit for YOU. One that you will be happy with “in good times and bad, till death do you part.” And perhaps, if it’s one of your goals, your legacy and your money will outlive you for many years to come.

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