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Do you think an investment advisor’s role is to predict the future? Well, think again. Investment advisors (IAs) don’t have a crystal ball. The advisor’s job has changed a lot. Years ago, she might have been expected to pick stocks or gain her clients access to IPOs (Initial Public Offerings). Investments were often made based on reactions to news events, “hot” stock tips, or even anecdotes.

Yet without research and scientific evidence backing each decision, when the markets got volatile, it was difficult to stay invested: the advisor or investor was more likely to sell on a whim. Reactive trading isn’t such a good idea because while, a price dip for a stock or fund could be part of a downward trend, it could also be a temporary blip, causing the investor who exited to miss out on significant long-term gains, in which case the investor would be better off weathering the downturn.

The introduction of better, more disciplined approaches and new technologies over the past decade have enabled advisors (and clients) to actively track their investments. Transparency is a buzzword in the industry today, as all stakeholders can see a much richer and more complete picture of how their investments are performing, as well as a more holistic view of how these align with their goals.

Greater transparency has led to a better advisor-client relationship. You and your advisor should be able to communicate openly not just about investment ideas, but about your hopes and goals for your lifestyle, family, retirement, long-term care options and other major choices you may face. Today, the advisor’s role is multi-faceted: including understanding their client’s needs, risk appetite and circumstances, and then creating an effective investment strategy around them.

Every good advisor should wear these 7 hats:

  • Expert: Develops client-specific expertise and risk-aware strategies to help clients meet their goals.
  • Objective Advisor: Serves investors’ needs without becoming a salesperson.
  • Listener: Gives clients time to discuss their goals, dreams, and concerns, and provides practical solutions to accommodate them.
  • Teacher: Explains investment fundamentals.
  • Architect: Builds a long-term wealth management strategy that matches the client’s risk appetite and life goals.
  • Coach: Reinforces the investment strategy and its benefits during periods of high emotion.
  • Guardian: Takes a proactive approach to highlight issues that may affect the clients’ investments.

How do you find the right advisor for you? Ask questions!

As an investment advisor myself, potential clients ask me everything from my personal history to past performance to client deliverables. Here are the questions that every investor should ask of a potential advisor:

  • How would you describe your investment approach?
  • How do you develop investment strategies for each client?
  • Who is your ideal client and am I a good fit for your practice?
  • How have your clients’ portfolios fared in down markets?
  • What type of risk management strategies do you use to deal with downturns or adverse market conditions?
  • What is your client retention rate?
  • How often do you meet with clients to discuss future strategies and past performance?
  • How and what do you charge for your services?

Once you find the right investment advisor – one who feel has your best interests in mind, has an honest, intelligent approach, and has the expertise to stay on top of the evolving financial landscape, hold on to her dearly. Avoid the trap of judging your advisor’s value based on short-term investment performance and, instead, focus on what you and your advisor can control, namely:

  • Creating an investment plan to fit your needs and risk tolerance.
  • Structuring a portfolio tilted towards capturing positive expected returns.
  • Diversifying investments globally.
  • Managing expenses, turnover, and taxes.
  • Staying disciplined through market dips and swings.

A good financial advisor will help you focus on actions that will add value in the long run. Investing your time to find the right advisor for you will certainly pay dividends.

By Maili Wong, CFA, CFP, FEA and Author of “Smart Risk: Invest Like the Wealthy to Achieve a Work-Optional Life”


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