I don’t have a financial advisor, but I do have a Citigold wealth manager assigned to me for an after-tax investment account. You get one of those after you cross a certain asset threshold. This self-managed account was seeded by my severance check in June 2012 and it has grown quite handsomely since due to regular contributions and the bull market.
Citibank has a wealth management division where you pay ~1% of your assets in fees. But I’m not down with traditional advisor fees. I enjoy managing my own money because I have the time and knowledge to do so. John, my wealth manager, makes trades for me for $9.95, highlights interesting investment ideas, gives me some color on what he’s seeing in the markets and what his clients are doing. From there, I decide what to invest.
The last investment idea he highlighted was an S&P 500 structured note where an investor gets 150% of the upside in the S&P 500 after 5 years, no dividends, and a 30% downside barrier to get all his money back. I’m always worried about putting new money to work when the stock market is at all-time highs, but I also know that markets tend to make higher highs in the long run. In the end, I decided to invest $50,000 in this security through this account.
John highlighted this idea to me because he knows my investment criteria. We talk or exchange e-mails on a weekly basis. If we weren’t in regular contact, then there’s a high chance I would have missed this particular note. There’s always so much going on and I know he didn’t call all of his clients about it. It’s up to us to find the best opportunities at any moment in time.
What I’ve discovered after consulting with dozens of personal finance clients over the years is that those who do have money with a robo-advisor or a traditional wealth advisor do not keep their financial advisor updated. Not only do they not keep their financial advisor updated with their financial goals, they don’t even get on the phone to get a monthly or quarterly rundown of their portfolio performance or hear their advisor’s market outlook.
Financial advisors love it when their clients don’t ask them for anything. Once they’ve set up their client’s asset allocation, all they’ve got to do is blast you their regular generic market update and collect fees. What a great business. Demand better.
Make Your Financial Advisor Work For His Money
I’d like everybody who has money with a digital wealth advisor or traditional wealth advisor to contact them today to arrange a 30-60 minute call. On this call you should go through the following three things:
1) Get an investment portfolio update. The update should include a run down of your winners and losers, an analysis of your current asset allocation, a rundown of the fees you have paid so far, and a comparison of your investment portfolio’s performance versus the S&P 500 or whatever index you’ve benchmarked.
If your investment portfolio’s performance is not keeping up with your desired benchmark, you must ask your advisor why. There’s no point consistently underperforming your benchmark if you are paying a fee. You must ask what are the benefits you’ve received for the fees you are paying.
2) Update your advisor with your financial goals. Your financial advisor can’t read your mind. You must keep him or her regularly updated on changes in your financial goals. Even if you haven’t made any changes, it’s up to you to remind him what your financial goals are. I guarantee you he will have no idea about the specifics if you haven’t spoken in the past 12 months.
When I first sat down with my wealth manager in 2012, I told him I was bullish on the economy and wanted to invest heavily in stocks with my severance check. The severance felt like a lottery ticket worthy of being parlayed into something greater. 100% of my severance check was invested in the S&P 500 and Dow Jones Industrial Index as a result.
Now, my outlook is more conservative because I want to protect the ~60% gains I’ve made since 2012. As a result, I sent John this e-mail:
Hope you had a great vacation. I’ve got some new goals I’d like to share with you for the new year that I hope you can help me with.
a) I’d like to shift my asset allocation to 40% stocks and 60% bonds to get more defensive. Let’s identify long-term holdings to sell to minimize taxes.
b) I’d like to invest all new money in a similar 40% stocks and 60% bonds ratio. My monthly cadence will be $10,000 – $30,000 a month on average. If I haven’t invested anything for the month, please follow up.
c) With the sell-off in bonds, I’d like to start building a significant municipal bond portfolio. My short-term goal is to build a $250,000 muni bond portfolio that spits off ~$6,250 a year in double taxation free income through CMF and MUB.
d) Please also send me new California municipal bond issuances with at least a 2.5% coupon. I’d like to buy specific bonds at par in $10,000 – $20,000 increments. I’ve got a strong focus on building double taxation free passive income over the next three years.
e) Within five years, I hope to use new money to build a muni bond portfolio equivalent to the principal left on my primary residence so I can live for free. Based on regular monthly mortgage payments and random principal pay downs, I expect the matching figure to be around $650,000 from the $819,000 mortgage today.
f) By June 1, 2017, I will have about $340,000 in a CD and $60,000 in a private investment come due. Depending on where the stock market and bond market are at the time, I’d like to deploy $300,000 of the proceeds in low risk investments that have a high chance of producing a 4% gross yield. Please keep an eye out for such securities.
It’s been an incredible run since we first started working together in 2012. Let’s protect the gains we’ve made so far and lower our risk exposure. Nobody has ever lost locking in a gain!
Now that my wealth manager knows my intentions, he can present to me more suitable ideas that fit my goals. Every single e-mail and phone call I have with him will be much more focused. He doesn’t have to guess what I want since he knows exactly what I want.
3) Provide a complete financial picture. The more your financial advisor knows about your entire net worth, the more appropriate recommendations he can make. The advice can be very different if he thinks your entire net worth is made up of the $500,000 you have with him versus if the $500,000 is just 20% of your net worth.
Since I’ve got my main savings account plus a couple mortgages with Citibank, I’ve determined my financial advisor knows enough financial information about me. I haven’t disclosed my assets at any other institution to keep him focused.
4) Create some incentives for your financial advisor. Financial institutions are always creating incentives for customers to do more business. You should consider doing the same to get better service. Your financial advisor deals with many clients daily. It’s natural for him to service the clients who have the most amount of money first.
If your portfolio is on the smaller side, the easiest way you can improve service is by keeping your advisor up to date with new monies you plan to invest. A savvy financial advisor will focus on your upside financial potential. Telling John I’ve got an influx of $400,000 by June 1, 2017 helps keep him motivated to continue sending me a monthly run down of his best investment ideas at the very least. When he was traveling abroad, he was actively responding to my e-mails at midnight his time. I really appreciate such service.
If you don’t have an influx of cash coming in, you can always talk about your plans for a potential influx. Instead of saying I’ve got $400,000 coming in next year that needs to be put to work, I could tell him I’m thinking of selling my business for a large windfall within the next five years. That will surely get him pumped to provide great service.
Finally, one of the easiest ways to get better customer service is to simply be nice. People who sell, love to talk to people they like. It’s an easier phone call to make.
Help Others Help You
We should all be maximizing benefits and minimizing costs. Don’t settle with the service you are already getting. Just the other day I was hitting my 15GB data limit with AT&T. I called them up and they increased my monthly data limit to 20GB for no extra charge. Ask for more.
It feels great knowing you’ve got someone looking out for your best interests. There’s just too much going on for you to keep track of everything happening in the financial markets. Give your financial advisor a game plan to follow so you can focus on the things that bring you the most joy.
Recommendation To Build Wealth
Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances yourself. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Updated for 2019 and beyond.