Ask Terry Questions Financial planner performance

Financial planner performance

By Terry Savage on May 09, 2015 | Financial Planning / Retirement

Terry, regarding your article “5ways to tell . . .”, the one question I was looking for pertains to a prospective financial planner’s performance. Is it appropriate to inquire about benchmarks? For example, does a planner’s performance, over time, at least equal the market after his or her fees are taken?

Terry Says:  You bring up an excellent point!  Unlike mutual funds, investment advisors are not required to publicly disclose their performance so prospective clients can make a judgment.  (That’s why it’s important to get referrals.)  But what you can and should do is ask if they “benchmark” their performance to a specific index.  They will probably respond that each individual is different, so they don’t have an overall benchmark for all accounts.

Then ask them about a specific account, about your size, and with similar goals — and ask for that performance return (without disclosing client names). And ask what “benchmark” they would use to gauge the performance of their advice to YOU.  It could be the S&P 500 if you are totally invested in equities, or the Russell 2000.  Or they might benchmark to several different indices, reflecting the diversity of your portfolio.  But beware an advisor who refuses to disclose performance vs a benchmark of any type — once you have an account with them.

One other thing.  I recently posted a column showing that 82% of fund managers failed to beat their benchmark indexes last year!  (It’s a good argument for just using an index fund!)   But the true value of an advisor goes beyond just performance vs. an index.  You want advice, of course — but an advisor also provides a useful function in helping you create and stick to an investing plan.  That part is priceless — if it’s a good plan!

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