As the year draws to a close, you may find yourself looking back on 2020 and reassessing the quality of advice and service you received from your money manager. Such year-end introspection can be productive, but you should also be aware of making hasty decisions or changing advisers for the wrong reasons. Finding the right money manager might be the most important financial decision of your life. We believe it’s best to take your time, ask good questions and do your due diligence.

Here are three tips to guide your decision-making and some simple questions to ask your current or prospective money manager. Hopefully, these insights can help you gain perspective and make a sound decision. 

1. Know what you’re paying and how your manager is compensated

You can learn a lot from understanding how a money manager is compensated. Does he or she receive commissions or other incentives from selling particular investment products? If so, those incentives may shape the advice you receive. Or is your manager’s compensation based solely on the assets he or she manages for you?

Keep in mind, high fees and commissions can significantly erode returns on any investment while potentially increasing the manager’s income even if you’re not getting closer to your goals. To make an informed decision, it’s best to know exactly how a manager makes his or her money.

There are three main arrangements.

Fee-only: These managers typically only earn an annual percentage fee based on the value of your account. Fee-only managers don’t make any commissions or transaction fees on investment products. With this structure, the more you make, the more your manager makes. This arrangement can help align your manager’s interests with yours.

Commission-based: These managers get paid when you buy or sell a security. They may also earn compensation based on selling you particular investment products. As a result, commission-based managers may have an incentive to push their most expensive products or those that earn them the highest compensation, rather than the securities that would best help you reach your goals.

Fee-based: Think of this as “fee plus commission.” Managers earn a fee based on the value of assets managed, but they also may earn fees or commissions from the sale of other investment products in your portfolio. For example, annuities, mutual funds or perhaps more exotic investment vehicles.

While you can find great managers with every type of compensation arrangement, we believe there’s an advantage to partnering with a fee-only manager whose compensation more directly aligns with you and your goals.

Ask: How do you earn money? What are your fees, and how are they calculated?

2. Look for a manager who’s a good listener and a regular communicator

You want a money manager who understands you and your long-term goals and finds the best strategy for you. That requires careful listening and excellent communication skills.

At a minimum, a manager should have a deep understanding of:

  • Your background and comfort with investing
  • Your current lifestyle and financial profile
  • Your financial and life goals
  • The amount you have to invest
  • What you want from your investments and your investment manager
  • Any imminent changes to your situation that might affect your plan or strategy

Be wary of managers who:

  • Make recommendations before getting to know you. If they haven’t taken the time to understand you and your goals, how can they recommend appropriate investments?
  • Don’t fully explain a product, how it works or why it’s a good fit for you. They may not know, or they may not want you to know the facts.
  • Disappear from time to time. If they’re always late for meetings or don’t return your calls and emails, their actions demonstrate they don’t respect your time. Likewise, if they stop reaching out when markets are down, that can be a red flag.

Ask: Who will help me determine my long-term goals? How often will we communicate, and how? How do you communicate with clients during volatile markets or other challenging times?

3. Do your due diligence

Choosing or changing a money manager is a decision you should make carefully and only after doing your due diligence. To make sure a financial professional is a good fit, you should ask questions and not feel rushed in your decision-making. A good manager will help you do this, making the answers to the aforementioned questions easy for you to understand.

Ideally you’ll have a productive and long relationship with your money manager. We believe the value of good advice and excellent service is demonstrated over years and across market cycles. That said, if you’re not receiving the service, advice or communication you’re hoping for, it’s worth reevaluating your current relationship. You deserve to work with a money manager who knows you well, who is relentlessly focused on your long-term goals, and whose fee structure makes it so your interests are aligned.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.