I’m trying to nail down what metrics I should use to evaluate how well my retirement account is being managed. I’ve vetted the company that “actively” manages my account. I have $1.5 million invested in a 50/50 mix of stocks and bonds and pay a 0.75% management fee. I would like to know if I’m getting the best bang for my buck.
-Chris
To know what metrics to track, you first need to consider what you’re expecting from the company managing your account and what they say they provide you. Ultimately, whether or not you are getting your money’s worth is a function of how satisfied you are. If they are meeting your needs and you have no complaints, then great! If not, you may want to look for someone new to manage your portfolio. Service and investment performance are two common areas you’ll want to consider. (And if you need help finding financial advice, this tool can help match you with potential advisors.)
What Services Do They Provide?
Services can vary widely from one firm or advisor to another. Some advisors are financial planners who, in addition to managing accounts, also provide comprehensive financial advice. Others may focus on a specific area like retirement, self-employment considerations or equity compensation. Meanwhile, some advisors strictly manage investments. You’ll first want to consider whether or not you’re happy with the services that you’re receiving.
Then, think about the level of communication you have with the advisor managing your account. No amount is objectively right or wrong as long as you are satisfied. You may not want to hear from your advisor very often or you may want to hear from them frequently. It’s up to you. The point is that you’re able to communicate with your advisor as frequently as you want and need and that the communication is useful to you. In other words, do you walk away from those conversations feeling overwhelmed or does that communication actually provide clarity?
One thing that sticks out to me in your question is that you refer to a company rather than a person. This makes me wonder how personal the advice and relationship are. (And if you need help finding a new financial advisor, this tool can help you connect with potential matches.)
How Have They Done Managing Your Investments?
Just as services differ from one advisor to the next, there are different investment styles that may produce different results. It’s very important that your investment philosophy and goals align with your advisor’s approach. Some advisors are going to be more active than others and be focused on different asset classes or strategies.
Again, the way to assess your portfolio performance is to determine if your advisor is following through on what they say they are going to do for you.
- If your advisor is investment-focused and suggests their methods will provide you with superior investment performance, you can compare your return against a relevant benchmark to see how your returns stack up.
- If your advisor is more planning-focused and suggests that they will manage your investments in a way to meet various goals, nominal returns may not be the best metric for evaluating them. In that case, you’ll want to assess whether you are in fact meeting your goals in a timely fashion.
Then again, your advisor’s investment style could be a blend between these two. For example, they might manage your investments with the goal of generating a specific amount of tax-free income or dividends per month. (Whether you need help managing investments or creating a financial plan, a financial advisor can help.)
How Much Does It Cost?
Of course, then there’s the cost. Again, it will vary from one advisor to the next and depend on the level and type of service you are receiving, but 0.75% is within the normal range.
Some advisors may charge twice that amount. If you want cheaper management it is certainly available. You can likely find a robo-advisor for half that cost, just be mindful of the general trade-off between service/communication and cost. You can even do it yourself and save the cost entirely. That’s a legitimate option, but before you decide to do that make sure it’s a viable route for you. (And if you need help in your search for financial advice, this tool can help match you with potential advisors.)
Bottom Line
When evaluating your financial advisor or the company that’s managing your investments, you’ll want to consider the services they provide, how much they communicate with you, how well your investments have performed and how much it all costs. If you’re unsatisfied in any of these areas, perhaps it’s time to look for a new advisor.
Tips for Finding a Financial Advisor
- 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 free introductory calls 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.
- Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
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