Sometimes there are moments in a prospective client relationship that can be troublesome. Often times, we come across these when expectations do not match up with what we realistically can offer. Unfortunately, this appears to be more prevalent when families have no prior experience with financial advisors, particularly the closer they are to retirement. Here are a few common areas where we find a disconnect between our services and the expectations of prospective clients (and sometimes current clients, as well!):

Expectation: Our job as a “financial advisor” is to act as a portfolio manager with a goal to outperform “the market”.

Reality: Sometimes we can act as a portfolio manager, in other instances we may employ models built by trusted investment providers or asset management through the use of separately managed accounts (SMAs). While there are investment managers who seek to outperform the “market”, very few financial advisors are trying to do this; rather, they are designed to allocate assets to a variety of asset classes in order to spread out risk and optimize rate of return relative to the client goals. The vision of the financial advisor with three computer screens trading stocks is an antiquated representation of what we actually do. 

Expectation: Financial advisors are experts in tax, estate, investment, college, and insurance planning and should be able to provide advice on all facets of a financial picture. 

Reality: While we have knowledge in a multitude of areas, the higher the net worth and complexity of one’s financial life, the more likely it is we will call in other experts to assist us in a deeper dive. For example, the tax code is so complex and detailed an accountant is one of the first experts we will call in to assist us in validating a financial optimization hypothesis. This, along with other experts in their field, will help us make good financial decisions. It is therefore imperative, in our opinion, to find an advisor that can check his or her ego at the door and realize that the collective wisdom of a team provides better advice than that of a sole practitioner. 

Expectation: When the stock market goes through a downturn, my financial advisor is actively trading to react to the situation. 

Reality: Rarely do financial advisors make massive changes to portfolios due to a downturn. They are more likely to make allocation changes when the time frame changes in a client’s life. For example, if someone has long-term oriented money in a taxable account but then decides to put a significant portion into a vacation home, the goal and timeframe for this money has shifted considerably, resulting in the necessity to reduce the risk of the asset allocation. While the natural inclination in a down market is to “just do something!”, which often leads to selling out at a suboptimal time, we believe clients and better served in a more consistent allocation. We still rebalance our allocations and discuss how downturns impact financial goal planning, but in many cases a limited amount of reaction is the action we need to take. If you meet a financial advisor that promises plenty of action, often called “tactical portfolio management”, you will need to do a significant amount of due diligence on their performance history. For us, we don’t see the advantages to such an approach. 

Clint Walkner