Many people leap into the new year energized to improve their lives in a variety of wealth and well-being zones, particularly in areas they may have been neglecting. In the case of money matters, scheduling a meeting with your financial advisor to tune up your portfolio is an important, practical goal, although it can feel like a “should-do” instead of a “want-to-do” resolution. Often, we aren’t motivated to be proactive about big-picture financial matters because we may feel anxious about money; we don’t feel confident in our investment knowledge or experience; and, let’s face it, we don’t want to look stupid.
Becoming better informed about and feeling more in control of your financial life can make all the difference in your relationship with money. Here are three questions to ask yourself and your advisor in the new year.
1. How much does an advisor cost?
Getting an accurate picture of the costs associated with a financial advisor requires a bit of digging, and the devil is in the details when it comes to fees in the financial services industry. It’s important that you have clarity on how your advisor is paid, including the underlying investment product fees and expense ratios, because the math clearly shows that fees have a significant long-term erosion impact on your portfolio.
I’m not suggesting that you quibble about the different ways your advisor gets paid, but instead just be aware of the total outflows from these sources and their true impact over the long term. You can request a complete cost summary from your advisor, which would normally include the following: fees paid directly to the advisor, commissions, and expense ratios charged within the various investment products within your portfolio.
In my experience, it’s not uncommon for these all-in fees and expenses to add up to an annual charge of 2 percent to 3 percent of your portfolio value, and sometimes higher. In years where returns from the markets are much lower, cost savings from fee reductions flow right to your bottom line, so it’s worth your time to ask the question.
2. How can I align my portfolio with my personal values?
Your money and how you spend, invest, and give it away all reflect who you are and what you value. Just by glancing over your checkbook and credit card statements, I can get a pretty good sense of what you care about: health, kids, church, education, charities, or travel, to name a few.
Likewise, your investment decisions can be a conscious reflection of who you are. I believe it’s important to consider investing not just with your calculator, but also with your conscience. And in today’s world, it’s never been easier to do that.
A few simple terms and concepts will help you step into this conversation with confidence:
Socially Responsible Investing (SRI) is the practice of buying into companies and funds that strive to make positive social and environmental change. Up until a few years ago, this investment strategy of “doing good to do well” was available only for the super-wealthy and for institutional investors. Now, there are ways to “invest with impact” available for all ages and asset sizes. In general, there are two broad strategies for participating in SRI:
Screening: Seeking or excluding companies based on specific, social criteria.
Positive screening is searching only among socially responsible corporations when looking for investment opportunities.
Negative screening is excluding companies that are socially irresponsible, but not necessarily socially neutral.
Targeted Investing: Proactively investing in companies that support specific social, environmental, and governance issues that are important to you.
Before meeting with your advisor, I suggest you consider the issues that are most important to you. Your advisor will help you look at the investments you already own and develop alternatives to create a portfolio that reflects more than just your profit motives, but your social conscience, too.
3. What other services does my advisor provide?
This question should begin with a self-analysis: Which parts of my financial life need management, and what outcomes do I expect from my relationship with an advisor? Then you can evaluate whether your advisor has the right approach and capability to meet your needs.
Advisor service offerings often run the gamut. Some focus only on managing your investments, while others offer a full suite of financial planning and other wealth-management services. As a responsible consumer, it’s important for you to understand what services your advisor offers. It may be that you are paying for services you don’t need, or there may be additional services your advisor could add that you didn’t know were available. For example: education for your kids about money issues, bill paying, and second opinions on investment opportunities you come across.
Making the most of your relationship with an advisor requires advocating for yourself. To launch this year as the year you start aligning your money with the life you want, begin by asking these three questions. Your money can be a source of empowerment and confidence instead of a worry or a burden. Ready. Set. Go!
is the founder and CEO of Highland Private Wealth Management, a boutique financial life management and advisory firm located in Bellevue. He has provided sophisticated wealth counsel to some of the most successful wealth creators, entrepreneurs, business owners, and executives in the country. He also is the host of The Wealth Confidant podcast. Connect with him via email at email@example.com, or find him on Instagram, Facebook, Twitter, and LinkedIn.