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Five Things Your Financial Advisor Should Be Doing

J. Patrick Collins Jr., CFP®, EA

There are a good number of articles on the internet about how to choose a financial advisor. I thought I would write one on what you should expect from your advisor if you already have one. We believe there are some key areas that all comprehensive advisors should be monitoring for their clients. Let’s dig into them:

1. Written financial goals– in the famous exchange in Alice in Wonderland, the Cheshire Cat says to Alice, “If you don’t know where you are going, any road will take you there”. Clients need to have written financial goals so advisors know if they are following the correct path. Even more important, they need to be real. There is no point in writing down goals that you aren’t really committed to. Goals need to be clearly articulated and prioritized. Saying you want to retire may be a good start but a financial advisor should help you determine whether buying that second home is more important than retiring at 65 versus 68.

2. Financial projections– projections are just a set of assumptions about the future that we believe are most likely to happen at a given point in time. By the time you wake up the next day they are stale. They get even more stale every day thereafter. Investment returns don’t work out like you plan, you get a new job, you son decides to go to a private university. These are just a few of the assumptions that could prove not to work out like you initially plan. You might ask, why create projections if they change so quickly? Two reasons- first, they let us know if our current path is moving in the right general direction. Second, they tell us what changes need to be made to get us back on path. Once they are completed, your financial advisor should be updating them on an annual basis to determine a) if there assumptions were accurate and b) what (if any) course corrections need to be made.

3. Tying investments to the financial plan– too often advisors lead with the investment portfolio. Before you invest, you need to know what you are investing for. Determining what rate of return is required to achieve the goals you have set out in your plan is a good start. From that point a portfolio can be developed that has the highest level of probability to achieve those goals. A good financial advisor should be laser focused on the relationship between your financial goals and the investment portfolio.

4. Managing ongoing tax liability– you can’t be a real financial advisor without factoring in taxes. For most of our clients, taxes cost them 20-40 percent of their income. Understanding how to minimize that liability requires knowledge of the tax code and how to apply it to items like investment products, account types, retirement income withdrawal strategies, retirement plan design and private investment opportunities.

5. Reporting progress– if an advisor is doing true financial planning, they will constantly have action plans they are implementing for a client and targets they should be tracking. If their plan is calling for a 6% annual return, are they on track, exceeding or behind? Other items that should be tracked are savings goals, debt management ratios, and the probability a goal will be achieved. An advisor should be providing their clients ongoing progress reports on both their investments and their financial plan. If not, how will you know if you are on-track?

There are of course other areas an advisor could help their clients in, but we believe these five items are key areas of focus for any advisor-client relationship. Too often advisors focus solely on investments. While investments are important, we have found that most clients want to understand much broader questions: am I on track to meet my goals? Is there anything I should be doing to get my finances in order? Is my family protected if something went wrong with my plan like a death or disability? A good financial advisor should answer these questions for you. Not just once, but these should be foundational issues that are continually monitored, reported on and discussed.