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Citi Wharton: Creating a Smart Wealth Management Plan

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Investors sometimes ask: Am I making the right decisions with my investments? Does my financial advisor truly have my best interests at heart? Should I be managing my money on my own? How can I ensure fees aren’t corroding my investment returns?

Charlotte Beyer – author of Wealth Management Unwrapped and founder of The Institute for Private Investors, which provides peer-to-peer networking and investor education for its members – discusses how you can go about finding the right financial advisor and ensuring you are comfortable with your investment plan.

Selecting an advisor

In selecting an advisor, you first need to know what kind of investor you are –your needs and expected outcomes.
Take your time to meet multiple advisors and you’ll begin to discern who is right for you. You need a person whom you can understand and who is going to suit your personal needs as well as goals. Ask each advisor exactly the same questions to put them on a level playing field.

Set expectations with your advisor. Determine your risk tolerance and the returns you are hoping for. Decide when you want to receive a call versus an email, as well as how often you want to meet up. Subsequently at each meeting, evaluate your advisor’s performance by comparing it against the metrics that were set out.

A good advisor would be able to guide you through different life stages. You may have one type of investment allocation at a certain age or in a certain circumstance, but you’ll need a different strategy later in life.

Understanding fees

Ask to see the fees that are being offered, the fees offered by competitors and the levels of fees charged for individuals with different levels of wealth. This will show a potential advisor that you’re well informed and will help you understand if the fees are fair. Remember, going to the cheapest provider may be alluring – but there is the risk that you will get what you pay for. With the cheapest provider, you may be missing out on some critical advice.

Active or passive?

Some believe that investing using a passive indexing approach is better than trying to outsmart the market: a passive approach allows you to diversify your risk and your investment performance will track a broader market.

However, it is dangerous to pick one investment strategy, put it on autopilot and go away.

Most investment professionals would agree that asset allocation is key. Even if all your money is in passive investments, you still need to be aware of how you’re allocating your money.

The importance of trust

Trust is the glue that holds together any investor-advisor relationship. The way to develop trust is to create metrics for valuing advice as well as a report card so you can track what is discussed, what is agreed upon and how your goals match up with your investment plan and performance.

But trust is a two-way street. Professional advisors need to expect investors to be trustworthy and to share information that will help them do a better job.

Most investment professionals would agree that asset allocation is key. Even if all your money is in passive investments, you still need to be aware of how you’re allocating your money.

From Knowledge@Wharton. December 22, 2014. The original article can be found at http://knowledge.wharton.upenn.edu/article/creating-smart-wealth-management-plan/

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Diversification does not guarantee a profit or protect against loss. Different asset classes present different risks.

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Market Specific Disclosures

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This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors,
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