It’s the difficult question that anybody who uses a financial adviser wants to know: Is my adviser measuring up? Or more bluntly: Am I getting my money’s worth?

The answer is tricky, entailing both objective and subjective evaluations. But it’s also worth addressing, rather than simply letting the status quo continue out of inertia.

“It’s important to make sure that you’re really comfortable with the person you are working with—their communication style as well as the overall results that you’re getting,” says Amy Arnott, a portfolio strategist at Morningstar Research Services LLC, a unit of Morningstar Inc.

Here are five questions consumers can use to evaluate their financial adviser’s performance.



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1. What am I paying for?
One objective assessment is to see how an adviser’s fees stack up against industry averages. If an adviser’s fees are widely out of range, it is worth digging deeper, especially if the higher fees don’t seem in line with the services he or she is providing.

As a rule of thumb, investors who pay fees based on assets under management might expect to pay 0.59% to 1.18% a year in fees, according to a 2021 analysis by AdvisoryHQ, a global news media and publishing company.

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Some advisers may charge fixed fees for financial planning, which can range from $7,500 to $55,000, depending on assets. Others charge hourly fees, typically between $120 and $300 an hour, according to AdvisoryHQ.

While investors might be able to figure out what they are paying in fees by looking at their monthly or quarterly statements, or by logging in to their account online, it can be confusing. There could be multiple types of fees and fee structures, and these can vary from one firm to another. The investor should feel comfortable asking an adviser to help flesh this out, and advisers should be willing to share fee information candidly.

2. How does my investment performance stack up?
Compare your portfolio performance with appropriate market benchmarks, Ms. Arnott says. While investments don’t always line up perfectly with the S&P 500 or the Russell 2000 small-stock index, for example, it is worth raising the question if your returns are significantly lower than an applicable benchmark. It is also a red flag if the adviser is not willing to provide comparative performance information, Ms. Arnott says.

Remember, too, that performance will fluctuate, especially in a volatile year like 2022. Regardless, the adviser should be communicating with clients to let them know whether they remain on track to meet their goals, she says.

Another concern would be if the adviser is making dramatic changes to the portfolio’s asset mix amid a market downturn. Asset allocations that are appropriate for a client’s time horizon and risk tolerance should not change because the market is down, Ms. Arnott says.

3. Does my adviser communicate to my liking?
Everyone’s expectations are different, but an ideal advisory relationship is collaborative, says Pam Krueger, founder of Wealthramp.com, a free referral service for vetted fiduciary advisers. Investors should ask themselves whether they are getting information on a regular enough basis to give them comfort and confidence in their plan, she says.

Roughly 42% of advisers said they connect with clients quarterly, according to an April survey by SmartAsset, a provider of consumer-focused financial information and advice. About 32% of advisers cited monthly check-ins, and 11% said they communicate weekly.

Clients should hold advisers accountable for communication preferences established early in the relationship. Likewise, advisers should respond promptly to queries—ideally within a day or two—and communicate in the way clients prefer, whether that’s email, phone or another way, says Susannah Snider, managing editor of financial education at SmartAsset.

Advisers should use plain English, so hard concepts can be more easily understood. And if working with a couple, does the adviser address both partners equally? “Both members of the couple should be comfortable with the adviser and up-to-speed on their finances since eventually one of them will pass away and the other person will be left to handle things,” Ms. Arnott says.

4. Does my adviser keep up-do-date on industry trends?
It’s a bad sign if your adviser is not familiar with the latest industry trends, including income strategies, tax-law changes and new investment types, or isn’t willing to do more research on your behalf. “Whatever it is that you care about, you want to know that your adviser knows more about it than you do,” Ms. Krueger says.

She offers the example of a woman who wanted to learn about cryptocurrency, not necessarily to invest, but to understand it better. Instead of using the opportunity as a teachable moment, her adviser of five years brushed her off, telling her he didn’t do that type of investing. She decided to switch advisers because hers came across as being “asleep at the switch,” Ms. Krueger says.

5. Does my adviser tell it to me straight?
A good adviser won’t just tell you what you want to hear. For instance, an adviser needs to be able to tell a client candidly to postpone retirement if there is a strong likelihood he’ll run out of money in his lifetime, Ms. Krueger says. The adviser should also walk clients through the math and assumptions used to reach these conclusions. “It’s not fun to share negative news with a client, but the stakes are too high, especially at retirement. An adviser needs to be able to tell you that you need to postpone retirement in order not to run out of money in your lifetime,” she says.

Ms. Winokur Munk is a writer in West Orange, N.J. She can be reached at reports@wsj.com.

Start with, are they a "fiduciary" using the legal definition?

Are they getting commissions from the products they sell? Do they receive ongoing fees or “trailers” from products sold or recommended?

Have they ever been disciplined by a regulatory agency?

Good points. Not surprisingly disciplinary actions are somewhat hard to find. If you are dealing with a full service brokerage you can probably rest easy as they do not want a crook in their office even if they generate lots of fees. There is a certain due diligence involved.

One place you can check for some information about your financial advisor is https://brokercheck.finra.org/

From their "about" page.
https://www.finra.org/about

quote:

FINRA—the Financial Industry Regulatory Authority—is a government-authorized not-for-profit organization that oversees U.S. broker-dealers.

I think it's pretty easy -- is he making money for me, or am I losing?

flashguy

quote:

Originally posted by radioman:
Start with, are they a "fiduciary" using the legal definition?

Are they getting commissions from the products they sell? Do they receive ongoing fees or “trailers” from products sold or recommended?

Have they ever been disciplined by a regulatory agency?

I agree with this. I’d start here

quote:

Originally posted by radioman:
Start with, are they a "fiduciary" using the legal definition?

Are they getting commissions from the products they sell? Do they receive ongoing fees or “trailers” from products sold or recommended?

Have they ever been disciplined by a regulatory agency?

This.

Your financial advisor is doing a good job when you aren't. Generally speaking. There are exceptions I suspect for feduciaries.

Compare his performance against, any S&P500 index fund. if the YoY of that fund is beating him he's not working for you.

quote:

Originally posted by ZSMICHAEL:
<snip>
Ms. Winokur Munk is a writer in West Orange, N.J. She can be reached at reports@wsj.com.

Her first name is a bit cumbersome. I wonder if her nickname is “Chip”.

^^^^^^^^^
It is actually Felonious

quote:

Originally posted by Pipe Smoker:

quote:

Originally posted by ZSMICHAEL:
<snip>
Ms. Winokur Munk is a writer in West Orange, N.J. She can be reached at reports@wsj.com.

Her first name is a bit cumbersome. I wonder if her nickname is “Chip”.

A few weeks ago I ran into two women I knew from photography school back in the early 80s. At the time, both were recent graduates of an alcohol rehab, and they were clinging to each other as a partial defense against drinking again. I mention this because both are still sober (like 40 years) and what surprised me is both are now Buddhist nuns (like 35 years). So there may be another wino cure monk out there.