Many conversations about the advisor-client relationship focus on the rate of return delivered by the advisor on your investments, or on the fees charged, and other definable and measurable considerations.And that is most legitimate and understandable. However, these considerations -- including the fees -- are only part of the total picture. The ‘other’ investment is your time, and you may want to consider investing more of that in your relationship with your advisor.This would always be important but has become arguably more so in 2019. This year is shaping up to be one of the most volatile, stomach-churning, awake-at-night in recent memory, a reality that underlines the need for sober and professional investment judgement.
Having interviewed upwards of 250 advisors over a period of 20 years, I can suggest several measures for consideration.
Online trading has its advantages: you can save money, enjoy the independence, revel in the control and experience the satisfaction of any do-it-yourself activity. However, as with your other investments handled by an advisor, online investments are likely to be more volatile than ever this year. It will make for more effective wealth management if you ensure that your advisor is aware of your activities and stock selection. If you are doing online trading outside of your relationship with your advisor, he/she needs, at least, a general idea of whether you are trading in risky, growth or value stocks.And for good reason. After the first one or two meetings, your advisor most likely suggested that a certain proportion of your funds be placed in value stocks, growth stocks, emerging market stocks and other asset types. If you trade in growth stocks in your online holdings that will skew the total proportion in growth stocks higher than might be advisable for your age or financial position. If your advisor knows that you are trading online in growth stocks, he/she can adjust your asset allocation appropriately.In this scenario, draw a parallel between your medical health and your financial health. In order to have a comprehensive picture, your family doctor needs to know about any and all treatments and medications prescribed by other medical practitioners.Related: Europe: The Good, the Bad and the Ugly
Related: Health and Wealth: Life Is Really Getting Complicated
If you anticipate a serious lifestyle change such as marriage, children or eldercare in the future, ensure that your advisor knows about the looming change should more cash be needed.
In the more immediate future, if you believe (as some do) that a recession is on the horizon, discuss an exit strategy for the investments that would be most exposed to a serious and unexpected downturn.
Even more specifically, if a recession could conceivably mean an abrupt change in your job status, discuss with your advisor whether you have enough liquidity in your portfolio to pay your expenses for at least six months without being forced to liquidate an investment at the wrong time. The next recession, when it arrives, will be different from others. (That is another article.) You may find it useful to compare your own outlook with that of your advisor and discuss whether changes are necessary on that score.At the same time, many believe that the middle class is being squeezed more than ever. That view is not universally held, however, and the opposing view suggests we generally have better lives than our predecessors had 40 years ago with better employment, health care, and education. You can resolve this question for your own situation by working with your advisor to make a clear distinction between the necessities you really ‘need’ and working to achieve them, as opposed to the optional items you ‘want’ and determine which of them are realistically within reach.Consult your advisor about buzz phrases. Check with him or her about the difference between a genuine buying opportunity created by the current market volatility and a possible bad investment decision. In recent months, we have seen numerous previously solid stocks plunge dramatically. Regular readers of this corner will know that I consider the words ‘buying opportunity’ the single most abused phrase in the entire contemporary investing lexicon. You may wish to discuss some of these fallen angels with your advisor. GE (GE), for example, has lost its blue-chip status and that’s the very dangerous problem. Some believe that it can regain its former status and for them that makes GE a ‘buying opportunity’. Realistically, the company will not regain that status in the short-or-medium term, and it cannot be considered a buying opportunity while it attempts to survive by selling off divisions.Boeing provides a useful comparison as a result of the recent crash of a second Boeing 737 Max 8 aircraft, this one an ill-fated Ethiopian Airlines flight. As a result, various airlines are deliberating whether to cancel orders of 737’s while an investigation is underway. At time of writing, Boeing has dropped 17.68%. The ongoing investigations by the U. S. Federal Bureau of Investigation and other federal authorities could very likely lead to more drops in the share price. Too many question marks about the cause of the crashes, software fixes and cancelled sales currently hang over the company and impact its shares. When those issues are resolved, it is within the realm of possibility that Boeing could become a buying opportunity. Your advisor can suggest which fallen angels will never become buying opportunities and those which have at least some potential.
These are volatile times in the stock market. The key is to invest the time to talk to your advisor, and in doing so, you may be able to increase your returns.
Disclosure: I do not hold any shares in any of the companies mentioned in this article and have no plans to purchase any of them.