After recent market turmoil, a few readers have asked how to find an investment adviser who can help plan a portfolio that meets expectations even in difficult markets. However, some also are wondering if this is the right time to make a change. One reader put it this way: "I am hesitating pulling the trigger [to change advisers] due to the current market turbulence."
While timing is never perfect, the reasons for wanting to make a change become clear during difficult market periods. That is to say, during volatile markets, your investment adviser's way of managing the relationship with you might raise red flags.
If you are uncomfortable with asking questions and getting answers during these markets, that discomfort could be part of the relationship.
Being in sync on risk, potential reward, cash flow expectations, taxes, inflation and legacy interests are all essential to structuring and managing a portfolio for you. Without effective communication, you are adrift in a rough sea without a lifeline. There is no need for that.
The answer is finding the right relationship, which takes some homework. Finding someone is not as easy as a Google search for "best investment adviser," unless you want to find advisers who pay for listings.
What everyone needs, especially a retiree, is communication that is transparent, lucid, real and regular.
Communication needs to be delivered in a way that makes you comfortable about how your retirement will be funded if you have a retirement income gap -- a situation in which Social Security and pensions don't cover living expenses. That's the riskiest situation for a retiree, and when a seasoned investment adviser is most important in structuring and managing the right kind of portfolio that produces cash flow, offsets inflation and taxes, and rides out market fluctuations.
Expertise is important, but that's not where the inquiry ends. The investment advisory firm and its representative also need to have a "background check."
Your resource is FINRA's BrokerCheck (brokercheck.finra.org/), or the U.S. Securities and Exchange Commission's Investment Adviser Public Disclosure (IAPD) website (adviserinfo.sec.gov). There you can look up the adviser and the firm for which the adviser works. You'll be able to read the Client Relationship Summary (Form CRS), which details the services the firm provides, the types of fees it charges, how the firm's advisers make money, what the firm's obligations are to a client, any conflicts of interest, and if the firm has had any legal or disciplinary action taken against it.
As for individual advisers, you can see how long the person has worked for the firm, the licenses the adviser has and the exams he or she has passed, and, most important, any disclosures -- be they customer complaints, regulatory actions or legal issues.
This exercise is important to weed out "bad apples" who you don't want to do business with. Attorney Niel Prosser of Prosser, Clapper & Johnson Law in Memphis, Tennessee, who represents claimants hurt by those bad apples, offers this advice: "Trust but verify." Prosser adds: "Look for red flags, such as overtrading, improper use of discretion, in-and-out trading, etc. Perhaps most important, look for 'yield to broker' -- i.e., is the broker frequently pushing expensive products that generate high commissions/markups for the broker?"
Next, you'll want to interview potential investment advisers. Form CRS, which is a disclosure form that firms must provide you, offers conversation starters to help with the interview. As a retiree, you'll want to focus on how the adviser will meet your goals. You'll also want to see the kinds of reports the adviser will give you, and make sure they are constructed in a way that is understandable for you.
You'll need to discern if the adviser and you are on the same page as far as what you want to achieve. Then, you'll want to ask yourself: Do I feel like this person wants to work with me? Do I want to work with this adviser?
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (email@example.com). Please visit www.juliejason.com.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION