Finding the Right Investment Advisor for You Part 2: What to Expect and Discuss
By Deborah Baker, CFP
Vice President and Senior Financial Planner
As a follow-up to our article ‘Finding the Right Investment Advisor for You’, what are the next phases in your financial journey, and what should you expect from and discuss with your advisor?
An experienced investment professional should create a roadmap with you to identify criteria that will provide a comprehensive approach to achieving your goals, incorporating not only investments but also providing holistic wealth management. Important items of consideration in this roadmap include the following, which should be evaluated and explained by the advisor prior to implementing your investment plan.
Investment Goals/Time Horizon
For what are you investing and what is the applicable time frame? Are you saving for a new home or other major purchase, a child’s education, retirement – or a combination of several things? Your goals will help determine risk levels with corresponding appropriate types of investment. Longer-term goals can be invested in more aggressive vehicles since the market recovery time is longer, while shorter-term goals with a need for more liquidity need to be invested more conservatively in attempts to preserve capital.
Risk Tolerance
This is a measure of the degree of loss and volatility you can personally tolerate in your portfolio. Many factors contribute to overall risk tolerance and should be evaluated, including your age/time frame, financial goals, and overall net worth. An experienced advisor should collaborate with you to gauge your emotional reactions to investing, which then directs you to appropriate asset classes and specific investments.
Diversification/Asset Allocation
There is always a need for proper diversification among varying asset classes, particularly when goal time frames differ. Most common asset classes include equities, fixed-income, cash and cash equivalents, real estate, and alternative investments. Try to avoid concentration in any particular sector or specific asset, as proper diversification can lead to a higher level of long-term stability.
Tax Implications
Tax-efficient strategies should address factors such as capital gains, investment income, and dividends, as well as appropriate account types, and the impact these various items have on your overall tax situation. If possible, a good strategy is to include three “buckets” of account types: taxable/non-qualified, tax-deferred/qualified, and tax-free.
Fees and Expenses
High fees do not necessarily correlate to better advice or investment product. Over time, fees can erode investment returns. Your financial advisor will scrutinize applicable investment fees and provide insight on the most cost-effective investments and solutions.
Quality of Investments
Ensure that your advisor has reasonable basis for recommending investments, regardless of asset class. Due diligence should be performed that includes examining an asset’s financial health and strength, management, and historical returns as well as future expectations. Decisions should not be made solely on past performance, as past performance does not guarantee future returns.
Account Monitoring
Accounts and assets need to be monitored on a regular basis, assessing current economic factors; a trusted advisor should provide discipline and strategic planning regardless of market behavior.
Selection of an investment advisor is the first step in establishing an investment plan, with investment considerations arising thereafter. An experienced advisor needs to understand your investment goals so that an appropriate strategy can be developed according to your initial roadmap, and then implemented and monitored for success. The specialists in Diamond Capital Management at The National Bank of Indianapolis offer such experience and expertise; contact us for a consultation.