Monday, July 28, 2008

When Should You Replace Your Financial Planner?

I'm Jan Dahlin Geiger, CFP®, MBA , author of "Get Your Assets in Gear! Smart Money Strategies." A Certified Financial Planner™ practitioner since 1988, I've been quoted in the Wall Street Journal, MSN Money, USA Today, Reader's Digest, and SmartMoney Magazine. I have been on the board of directors of the Financial Planning Association (Atlanta chapter) and practice as a fee based planner with a Registered Investment Advisor firm. Additionally, I was just selected by Atlanta Magazine for their "5-Star Wealth Managers" list which will be published in their October, 2008 issue.

What I have noticed over the last 20 years since I have been a CFP® is that the number one reason people fire their planner is that their phone calls and e-mails are not returned on a timely basis. The client (often correctly in my opinion) infers that if the planner is too busy to return phone calls, they must be too busy to be doing a good job of watching their portfolio. Firing a financial planner due to poor performance of the portfolio is the second reason that I see.

If someone is going to base their decision on portfolio performance, in my opinion they should consider two things. The first is how their portfolio performed in comparison to the market. If the market is down 15% or 16% and they are down 7% or 8% or 9%, they should know their financial planner is doing a good job. If you are going to be in the stock market, you will be down one year out of every four on average. No planner in the world is going to be able to keep you from losing money when the market is down. However if they do a decent asset allocation, the client should be down less than the market is down.

The second thing the client should base their decision on is how the individual holdings in the portfolio performed. For example, if there are 15 holdings in the portfolio and the market is down 15%, the individual performance of those 15 holdings might range all the way from a positive 11% to a negative 18%. If there are individual holdings that are down 25% or 50% or 90%, that should be a pretty big red flag that the financial advisor has not been monitoring the portfolio very well.

It is not unusual for there to be a 30% spread from the best position in the portfolio to the worst position in the portfolio. This is true each and every year, particularly if the planner is doing good asset allocation. In an up year there might be a stock position that is up 35% while the bonds in the clients portfolio might only be up 5%.

By the way, the numbers I used above are from an annual review I just did for a client last Friday. The market is down about 15% in the last year, she is down about 8%, and her holdings range from a positive 11% (international bonds) to a negative 18% (international stock fund).

If I can provide additional information, please don't hesitate to contact me.

1 comment:

Unknown said...

With the assistance of a financial planner, you can just possibly reach your goal to be financially steady in the future. That is the key reason why you need to choose the correct financial planner because they can either lead you to success or make you otherwise. That is the reason why you need to have a certified financial planner houston.