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Is Your Financial Adviser Doing a Good Job for You?

by Paul Morgan

When you decide to work with a financial adviser, it can feel like you’re buying something intangible. They make promises, but it can be difficult to determine whether they’re truly delivering on those promises or just making sales pitches. It often takes time to gauge how well your financial adviser is doing, typically around six to 12 months. Even then, it can be challenging to determine what metrics to use to evaluate their performance.

Many people associate financial advisers with managing investments. However, if your adviser is solely focused on investing, you may be missing out on other opportunities and potentially overspending on fees. Your adviser should not be complacent with your hard-earned life savings but should actively work to provide comprehensive services.

Fortunately, studies conducted by companies like Vanguard have helped shed light on the true value of a financial adviser. Vanguard’s study found that advisers can potentially add value of up to 3% or more by providing various services. However, achieving this value requires more than just selecting an investment portfolio. Proactive management in areas such as tax, income, and investment planning is crucial for maximizing the benefits of working with an adviser.

If you’re unsure whether your current financial adviser is providing the services you deserve, here’s a checklist to help you assess their performance:

1. Are they a fiduciary? A fiduciary is legally obligated to act in your best interest. If your adviser has primarily sold you products like annuities and life insurance, they may not be acting as a fiduciary.

2. Do they review your tax return annually? An adviser should review your tax return annually to identify any missed opportunities for tax planning.

3. Have they been doing Roth conversions for you? Forward-looking advisers often perform annual Roth conversions to take advantage of lower tax rates and better position clients for future tax increases.

4. Have they discussed how to avoid the Social Security tax torpedo? An adviser working with retirees should be knowledgeable about Social Security taxes and develop a plan to minimize the impact of these taxes.

5. If you give to charities, have they set up a donor-advised fund (DAF) for you or initiated qualified charitable distributions (QCDs)? Your adviser should explore strategies that can help you save on taxes when making charitable contributions.

6. Are you being charged internal expense fees on top of a management fee? Some mutual funds come with internal expenses that can increase the overall fees you pay. Working with a financial adviser who manages investments more efficiently could reduce these costs.

7. Have they developed an income plan for your retirement that protects a portion of your portfolio from market losses? Investing solely in stocks and bonds can leave your portfolio vulnerable to market fluctuations. A well-structured income plan should mitigate this risk.

8. Have they brought new opportunities to your attention in the past year? Your adviser should proactively inform you about new investment opportunities that could benefit your financial plan.

9. How often do you meet, and what is the main focus of those meetings? If your review meetings primarily revolve around investment returns, you may be paying too much for just investment advice. These meetings should also involve proactive planning for the future.

10. Does your adviser work with a team, or is your retirement plan solely handled by one person? Knowing the capacity and resources of your adviser can help you understand how much attention they can dedicate to your plan.

If you can confidently answer these questions positively, you likely have a good adviser who is working diligently on your behalf. However, if you’re left with more questions than answers or are unsure of what your adviser is doing, it may be time to seek a second opinion on your financial plan. Don’t hesitate to explore other options and find a trusted guide who can provide the comprehensive planning you deserve.

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