When choosing a financial advisor, many investors struggle between wanting a high-level hitter who can beat the market, and yet not wanting to risk too much for him. Ideally, they would find someone who will maximize performance and minimize risk, but neither the best nor the brightest advisers can consistently do both. Perhaps this explains why advisers who provide investment management spend so much time discussing their philosophy with potential clients. In introductory meetings, they share their methodology for stock selection, market analysis, and portfolio diversification.
They can ask newcomers to rate their tolerance for risk. This gets tricky because individual investors tend to mischaracterize how much risk they are willing to take in pursuit of massive returns. For consumers, the real challenge is setting realistic expectations about what your advisor can and cannot do. Some investment managers boast of their own research that helps them identify emerging sectors or undervalued stocks. They can also cite your fondness for overlooked asset classes and your track record of superior performance. In contrast, other advisers emphasize their commitment to preserving wealth. They caution that their clients will likely not outperform market indices, but will maintain a diversified portfolio to mitigate risk. Advisors know that forcing clients to choose between wealth creation or wealth preservation creates tension. It is normal for clients to want both, and to avoid getting locked in, some consultants apply an entirely different construction to describe their services. Jared Snider, a consultant in Oklahoma City, Oklahoma, does not make clients decide whether they want to accumulate or safeguard their assets. Instead, it encourages them to take a step back and rethink how they view money. “Money is just the engine to fuel the ‘why’,” he said. “Why is money important to you? What is your role in helping you achieve your goals? “For example, 40-year-old clients may want to invest more aggressively to reach a desired ‘magic number’ that will allow them to retire in a few decades. They are willing to risk short-term downturns to reach a long-term goal. Timeframe. Others may see money as a way to enjoy retirement, allocating a certain amount each year for travel, philanthropy, and supporting their children and grandchildren. Some advisers find that pleasing clients hungry for upcoming actions Hot is a pointless proposition, so they don’t even try. Jim Sexton, a certified financial planner in Hudson, Ohio, often conducts public seminars as a prospecting tool. He says that at many of his events, someone will raise their hand and ask : “Are you beating the S&P 500?” “I reinforce that throughout the relationship with the client, I ask them in each meeting: ‘Are you on track with your plan? you some arbitrary index? ‘ “Said Sexton.” I tell you that market returns are not relevant to you. Your personal statement is relevant to you. It is what keeps you on the path we have set. ” More: These stocks seem expensive now, but in two years you may wish you had bought them at these prices More: 3 Lessons From Financial Advisors Who Need Help Managing Their Own Portfolio