Year-End Financial Check-Up: Evaluating Your Advisor

As you look back on 2015 and set out to make your 2016 resolutions a reality, it’s important to take a moment to evaluate the performance of your financial advisor. Here’s a list of items to consider.

Over the past few weeks, we’ve looked at several components of your end-of-year financial check-up. It’s always a good idea to check up on your tax situation, your budget, and your investment diversification. If you work with an advisor, now is a good time to check in on their performance as well.

Schedule some time to sit-down with your advisor, perhaps in early January when the holiday rush has died down. Be prepared to speak with him or her on the following topics.

2015 Performance and 2016 Goals

These may seem like two completely different things, but I group them together for a reason. Any long-term investment strategy is made up of smaller increments—perhaps one- or two-year windows. Investment performance that exceeds—or conversely, fails to meet—the goals established don’t necessarily require annual adjustments. But both you and your advisor should always be aware of the recent performance data and vigilant about any possible adjustments that need to be made.

Market fluctuations are a natural and unavoidable aspect of investing, so a small dip in some investments isn’t necessarily cause for alarm. But sometimes our investments drift slowly away from our financial goals over time, in increments nearly too small to notice. Take some time with your advisor to make sure you’re still on track.

Yearly Commissions and Fees

In a previous article, we discussed the important difference between a standard of “suitability” and one acting in a true fiduciary aspect. In brief, a fiduciary standard is a higher standard that takes things into account that “suitability” does not--things like the long-term goals of the investor and the potential long-term future viability of an investment. Talk to your advisor to make sure you understand the difference, know which your advisor is held to, and take an opportunity to look at yearly transaction fees to make sure what you’re paying is appropriate for the services delivered.

Earlier this year, the White House Council of Economic Advisers estimated that conflicts of interest cost retirement savers as much as $17 billion per year. There is heated debate among the Department of Labor, financial advisors, and others in the financial services industry about a potential strengthening of conflict of interest laws and policies, but until we see how those changes play out, you’re the one most responsible for ensuring that your advisor has your best interests front and center.

Overall Economic Climate

Any advisor worth their salt will have a good grasp of current financial indicators and how those may play out in the year to come. That doesn’t mean trying to “time the market” or make seismic shifts in your investment strategy. But it may mean making some changes to your investment mix.

The end of the year can be hectic, but a good, attentive advisor will make the time to ensure that the partnership is proceeding on solid ground.