I’ve had a fiduciary financial advisor for over five years. He recommended a type of sister company working with him to handle my account. I never hear from him unless I email a question or ask to invest in a CD or stock. Is this the way a financial advisor should act?
He lets the other company make all the decisions unless I question them to him. I really never hear from him unless I have a question or gripe. I guess I read a lot and am curious if a financial advisor should make recommendations to the client or even touch base at least once a year with them. What are they supposed to do other than take my rollover and suggest a sister company to manage it?
– Ken
Your question raises several important discussion points, mostly related to setting expectations and communicating with your advisor. While every advisor will communicate with clients differently, I’ll share some ways you can think about evaluating your advisor’s communication frequency and how this compares to the expectations you set together five years ago. It’s also worth considering how advisor communications tend to evolve as client relationships progress. (And if you need help finding a new advisor, SmartAsset can connect you with up to three fiduciary advisors.)
Setting Expectations & Communicating with Your Advisor
Before drawing a conclusion on the appropriateness of your advisor’s communication practices and investment process, it might be helpful to reflect on how the relationship was formed and what expectations were originally established. For your question in particular, you might think back on how the advisor explained their service model – including services rendered, process for making decisions, communication and meeting cadence, etc. – and how they implement investment strategies to align with client goals and objectives. Here are a few specific questions to consider:
- Did the advisor or advisory firm provide a written or illustrative overview for their process – including investment and communication processes – or was it shared verbally?
- Did you give your advisor discretion over your investments? In other words, did you agree to let him make investment decisions for you without requiring your consent each time a trade is placed?
- How is the advisor compensated? Are they fee-only or do they receive commissions? How is the sister company compensated for managing your investments?
You might not know the answers to each question, and there are certainly others that are worth contemplating, but try to recall what the advisor said he would do at the beginning of the relationship. This can help you objectively compare your experience to the stated expectation. And if you don’t know the answers, it’s appropriate to ask your advisor for a refresher on his processes. (But if you want to explore a relationship with a new advisor, consider matching with one using SmartAsset’s free tool.)
Evaluating Your Situation
If your advisor clearly outlined an investment and communication process that says he will check in with you at a specified frequency, and if he is not adhering to that, then concern might be warranted. However, if this was not discussed at the outset of the relationship, it’s worth scheduling a meeting to align on how you can best communicate with each other moving forward. Given the relationship with the sister company, it might also help to understand if there is any onus on them to communicate investment changes to you.
The second question regarding discretion is important and often misunderstood. If your advisor has full discretion over your investments, he does not need to make recommendations to you – he will likely make decisions on your behalf based on what is in the best interest of your goals and objectives.
There is, of course, some nuance here. For example, if you laid out an expectation to be informed of certain changes, even in a discretionary relationship, then you might follow up with the advisor and request that he provide you with more regular updates. Also, if the advisor indicated in his process overview that he would explain changes or give general updates, then he should be held accountable to that standard. And of course, if you have questions or concerns over specific choices that you advisor makes, it’s fine to ask him to explain his rationale, regardless of whether the relationship is discretionary in nature.
(And whether you’re looking for discretionary or non-discretionary management, SmartAsset can help you connect with fiduciary advisors to talk about how to meet your goals.)
Compensation can be tricky. Fee-only advisors earn their compensation solely from the fees that their advisory clients pay them. This fee is often charged as a percentage of assets they manage. In theory, this should align incentives since the advisor does better when your account grows, or loses less in a down market. If your advisor uses this fee model, you may question why he doesn’t seem to be more active with your portfolio – again, a conversation could be helpful to understand the “why” behind his decisions.
If your advisor earns commissions in addition to the fees you pay, you might look more closely at the investments they have made to ensure they align with your goals and are not merely helping the advisor generate a commission.
Lastly, you’ll want to better understand the financial relationship between your advisor’s firm and the sister company. As far as the specific recommendation to work with the sister company, that is perfectly fine as long as:
- The recommendation is in your best interest and aligns with your goals;
- It was explained from the beginning that the sister company is part of the advisor’s investment strategy;
- Any fees associated are reasonable and transparent.
Typical Financial Advisor Communication Cadence
Taking a step back from your specific situation, it might be helpful to share how communications tend to work between advisors and clients. Again, this is not going to be the case for everyone, but it is a pattern that tends to arise.
First, it’s common that most of the investment and financial planning recommendations that an advisor makes will occur within the first three to six months of a relationship. This is when the advisor is transferring and/or opening accounts, following through on planning recommendations and implementing investment strategies. (And if you’re just starting your search for a financial advisor, consider using SmartAsset to connect with advisors who serve your area.)
From there, advisors generally only provide investment recommendations when there has been a material change in client objectives or a life event has occurred. The advisor also may propose a tactical investment opportunity like capitalizing on a short-term opening in the markets or a longer-term illiquid investment.
This might be surprising, but please note that it’s not uncommon for no changes to be made over the course of a year if a plan is on track and if the investment portfolio is doing its intended job. However, it is completely reasonable to expect general communications within that timeframe and to ask questions like, “I noticed that there hasn’t been any trading activity. Is my account still aligned with my objectives?”
Keep in mind that this process would apply for an advisor who maintains discretion over a client’s investment assets. If discretion is not established, then the advisor will likely be making more frequent recommendations to the client (usually on a trade-by-trade basis), and it is on the client to execute on those recommendations.
Bottom Line
Open and regular communication represent one of the most important components of a fruitful client- advisor relationship. In the absence of strong communication practices, it can be difficult to establish trust. While it is best for both the client and advisor to align on communication frequency and scope from the outset of a relationship, this is not always the case. If you ever need to reset expectations, it is always appropriate to ask for a meeting or to inquire about the advisor’s client review process – this will also provide an opportunity for you to reaffirm your preferred communication practices as the client.
Lastly, while advisor service models vary, and maintaining one is not a requirement for advisors, seek to understand your advisor’s client-service approach from the start. How frequently do they communicate with you? How regularly do they provide portfolio performance reports and in-person reviews? How often will they check in to ensure you are staying on track with your plan? How often do they expect to simply give you a call to say hello? If they set this expectation at the beginning of a relationship, it can help you to objectively evaluate whether they are upholding their end of the bargain in the future.
Tips for Finding a Financial Advisor
- When hiring a financial advisor, you’ll want to have a clear understanding of how much they charge for their services and how you’ll pay those fees. For example, many advisors charge a fee for investment advice that’s based on a percentage of your assets under management (AUM). While a 1% fee is commonplace, you may encounter fees that reach up to 2% or more. However, if that fee includes financial planning and tax services, you may find that it’s worth it.
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Jeremy Suschak, CFP®, is a SmartAsset financial planning columnist who answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Jeremy is a financial advisor and head of business development at DBR & CO. He has been compensated for this article. Additional resources from the author can be found at dbroot.com.
Please note that Jeremy is not a participant in SmartAsset AMP, and he has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
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