If you’re an experienced investor or a DIY investor, you may want to use a financial advisor. There are plenty of benefits. But, the way you utilize one is going to be different from someone who is unexperienced with the markets. I’ll explain the main ways you should use a financial advisor below.
First of all, I’m an experienced investor myself and have a financial advisor I use at Citibank. Here’s a look at an experience I had with him that inspired me to write this post.
It all started when I was on a two-week vacation in Hawaii. Everything was going perfect except for one thing. My financial advisor from Citibank failed to call me the day a particular deal was closing. It was a structured note investment. He’d agreed to call me before the purchase deadline before I left for vacation.
This investment offered between a 15% to 20% guaranteed return on the Dow Jones over four years if the Dow closes above the initial strike price plus any upside beyond the guarantee and a 10% downside buffer.
Use A Financial Advisor That You Can Depend On
I wanted to know whether the guaranteed return was 15%, 16%, 17%, 18%, 19%, or 20%. This would help me determine how much to invest. I’d already made up my mind that I would lob anywhere between $20,000 – $30,000 into this note.
But, I didn’t receive a call on the day of closing. Instead, I got an e-mail from my financial advisor two days after the close. He got his calendars totally mixed up. Sigh. At least give a believable excuse! You know like, “I went binge drinking the night before and called in sick on Monday.”
Tim’s lack of follow up cost me around $1,000 in paper gains in just a couple of weeks due to the Dow’s move upwards. As an early retiree, I’m investing all the disposable income I’ve got. I’m looking for capital appreciation and income to help replace my lack of W2 income. Leaving cash in a money market account yielding 0.1% is a financial crime I refuse to commit.
Lesson learned. I should have put a reminder in my own calendar to chase him for the final deal terms. If you are interested in an upcoming IPO and plan on going away for vacation, put in your IOI (indication of interest) before you leave. Then, stagger your order size depending on the final price.
My financial advisor might still forget to input an order. But, at least there will be an e-mail trail indicating my IOI. And the firm can likely still fill the order in arrears.
3 Main Reasons To Use A Financial Advisor
1) Investment ideas. There are always interesting investment opportunities somewhere, it just takes effort to look. Utilize another set of eyes specifically looking for investment ideas meeting criteria you’ve discussed beforehand. This increases your chances of finding hidden gems.
You can ask your financial advisor to send you a weekly recap e-mail. Ask for highlights on what went on in the markets, buy/sell ideas, or big news and analysis. Somebody is always making money on something, somewhere.
2) A sounding board. Hopefully your financial advisor is financially astute. Don’t use a salesman looking to get you into the latest product with high embedded fees. If you have an experienced financial advisor, definitely use him or her to test out your ideas.
For example, I made a three minute pitch to buy Chinese internet stocks. I wanted to see if he had any feedback that I might be missing. He echoed most people’s concerns about corporate governance and voodoo accounting.
But, he really had no idea what he was talking about, which is fine. Before you buy anything, it’s always good to understand a reason why someone would be selling.
3) Learning seminars. I have a financial advisor at Fidelity where I have my rollover IRA. She always e-mails me the latest upcoming seminars that are hosted in her office. The latest two are: Lessons From The Downturn and Intermediate Options Strategies.
These sessions are a great way to learn something, get some free food, and meet new folks. Leverage your financial advisor to expand your knowledge.
More Reasons Experienced Investors Should Hire A Financial Advisor
4) Tax and estate planning. Many of us are financially astute in making and saving money. But, when it comes to taxes and estate planning we need as much help as possible. It’s important to avoid getting robbed by the tax man given tax laws are always changing.
It’s also recommended to consult estate planning lawyers due to all the law changes. I plan on discussing Rule 72(t) strategies with my advisor later in the month. In addition, I’ll ask about potentially opening up a Fidelity Personal Retirement Annuity.
It’s technically not an annuity. But, a fund where I can contribute after tax dollars, regardless of my income level. And allow the growth to compound tax free. The FPRA is much like an IRA. Financial advisors generally have colleagues in different branches who can help you out on a multitude of financial issues.
5) Portfolio Rebalancing. Over time, your investment portfolio can get out of whack due to the growth of your winners. A financial adviser can rebalance your portfolio and save you the hassle. They can do so on a monthly, quarterly, or yearly basis per your instructions. Having a balanced portfolio based on your risk tolerance is important, especially during downturns.
6) To relax and enjoy life. Most of you with financial means have better things to do with your lives than just watch over your money. You’ve got countries to see, family to be with, inventions to create, and work to do.
Use A Financial Advisor Who Has Your Back
While in Hawaii I was hiking, playing golf, surfing, scuba diving, and eating like a hungry hippo. In addition, I was horseback riding, and watching sunsets over a different cocktail every single day. The last thing I wanted to do was think about whether Apple would beat estimates or sink further below $400.
Knowing that a financial advisor has my back lets me relax on the more important things in life. Money is only a means to an end.
If something big is happening or a position is blowing up in your portfolio, trust that s/he will let you know. You want to use a financial advisor who will make prudent decisions for you. They should have your back because you’re busy with work, family, and life. Perhaps they won’t execute trades on your behalf, but they can at least give you a heads up.
Manage Your Financial Advisor For A Better Relationship
It’s important to set expectations in the beginning when you use a financial advisor. For my financial advisor at Citibank, my #1 request is for him e-mail me the prospectuses of all new index or single stock structured products.
He does this once a month and lets me know which one he likes best. Given I plan on investing new money every month, it’s important to be aware of a steady pipeline of new securities.
For my financial advisor at Fidelity, all I ask her to do is put me on the mailing list for all upcoming local investment seminars. I enjoy learning new things and meeting new people.
I’m particularly interested in shielding as much of my investments as possible from the tax man. So, I’ve asked her to let me know whenever there are any new tax efficient product offerings.
Utilize Technology Alongside A Financial Advisor
To make sure I know where all my money is going, I simply aggregate all my financial accounts online with Personal Capital. I check in once a week or so to make sure everything is on track. Sometimes I catch ridiculous bank fees I had no idea I was paying. Other times I just like to make sure I have a comfortable net worth mix.
Finally, once a quarter I run my portfolios through the Investment Checkup tab. It helps me if I am under or over allocated based on my risk tolerance. It’s nice being in the command center online.
If you want further motivation to save, you can use a financial advisor to keep you accountable. There is something very comforting knowing that someone is watching over your investments, especially when you’re away on vacation. I know many older retirees who dial up their financial advisors just to shoot the breeze because they are bored and want someone to talk to.
If you are not there yet, don’t worry as it just takes time. Financial institutions really do start favoring their larger customers with diversified product offerings. They also can give you access to lower borrowing rates, and better service for the most part.
You may even get invited to social boondoggles just because they want to keep you entertained. Once you amass a large enough financial nut, make sure your financial advisor is on the ball with what you’re looking for. Now if I can only get that $1,000 in paper profits back.
Here are some additional articles for further reading
- Can Anyone Be An Accredited Investor? The Government Can’t Tell
- How Do You Know When To Take Profits In Growth Stocks?
- How A Structured Note Can Save Value Investors From A Bad Trade
For more resources check out my:
- Top financial products page to find the best products for your finances
- Invest in real estate page to invest in my favorite asset class,
- Free wealth management page to manage your money better.
Financial Samurai has been online since 2009 and is one of the most trusted and largest independently-run personal finances today.
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Photo: Larry Ellison’s mega yacht named Musashi. You know his financial advisor is keeping him up to date on his billions or else!