This
is the second in a series of two articles on "know your
advisor." In light of the dot-com debacle last year
and the Enron scandal this year, some investors have decided
to stay clear of the financial markets. Many feel their advisor
did not warn them when the markets started to go down, and
they could have sold investments and came out ahead. One
solution is to choose your advisor wisely, for all advisors
are not created equal. The following are some guidelines.
Communication
The advisor is responsible for giving you a clear explanation
of his or her philosophy and processes. Your advisor should
adhere to an agreed-upon plan and not deviate from it unless
he or she has discussed changes with you. Communication should
be open and honest. Just as you provided full disclosure
to your advisor, your advisor needs to provide the same to
you. Educating The Client
Advisors should provide an overview of financial markets
and potential investment risks to help you make informed
and intelligent asset allocation decisions. Without knowing
all of the details surrounding your assets, your investment
advisor may not be able to make the most appropriate recommendations.
So you should expect your advisor to ask questions about
your entire financial position.
The advisor should also clearly explain the reports and
other materials generated, and how they relate to the management
of your asset. The advisor should also discuss his or her
general method of client communication. If your advisor is
managing a taxable account, he or she should be aware of
your tax situation and discuss the consequences of your investment
strategy, taking these costs into consideration.
Review the tax-efficient investing section at MsFinancialSavvy
so you can understand taxes as they relate to investments.
Investment advisors should be willing to educate you on
a continual basis to keep you aware of your financial situation
and of how current and expected trends in the financial markets
may affect you.
Use the news at MsFinancialSavvy on a daily basis to keep
you informed of current financial situations.
The Partnership
Overall, and investment advisor should be someone who acts
as a sounding board for ideas. Your advisor will hold your
hand in bad times, and will keep your expectations in check
in good times.
When working with your advisor and establishing goals for
your portfolio, he or she should help develop a written investment
plan that provides the basis for your investment relationship.
This plan should include, at a minimum, your agreed upon
goals and objectives, investment restrictions, asset allocation,
performance comparisons, and a schedule for review. You should
structure the plan for your specific needs while giving it
the flexibility to be changed as time goes on.
Read the asset allocation section in our Stocks 101 tutorial
to review criteria for allocating assets and why.
Communication is crucial in a true partnership, and both
positive and negative feedback should be welcomed.
In Summation:
A strong relationship with your investment advisor is critical
to the long-term success of your portfolio. While you are
ultimately in charge, remembering the specific roles that
both you and your advisor play should ensure a solid affiliation.
For a snapshot of your individual stock or mutual funds
progress, use our stock and mutual fund quote research. Place
several time scenarios in the drop down menu to check your
investments history over time. Use our stocks glossary and
our mutual funds glossary to review the definitions of investments
you have.
Related Links:
Understand Money and Finances Before You Visit Anyone[click
here]
Mutual Fund Tutorial[click
here]
Stocks Tutorial[click here]
Lois Center-Shabazz is the founder of MsFinancialSavvy.com and author of the
3-time award-winning personal finance book, Let's Get Financial Savvy! ISBN
#0971979502.
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