Timely and Important topic! May I add to your excellent checklist @adamtaggart:
1. Inquire about their performance on capital preservation during the bad times.
A. Dot-com boom and bust
Aug 24 2000 - July 29 2002 (23 months)
S&P Down 47%
B. Housing & Great Financial Crisis
Dec 15 2006 - Nov 20 2008 (23 months)
S&P Down 51%
2. This you can do yourself. check what holdings are actually inside your 401k and IRA funds. Many funds stuff 3-5 other inhouse funds into one, thus basically offering the same mag 7 growth fund across multiple institutions.
Over the long term, 98.6% of all actively managed domestic US equity funds in every major category and 99.8% of all large-cap funds, under performed the S&P 500 Equal Weight Index.
Based on 20-year total returns in USD (per S&P Dow Jones Indices LLC, CRSP, data as of Jan. 31, 2023), the performance of the major funds:
S&P 500 Equal Weight Index (Annual Return = 11.48%)
S&P 500 Growth (Annual Return = 10.88%)
S&P MidCap 400 (Annual Return = 10.84%)
S&P SmallCap 600 (Annual Return = 10.67%)
S&P 500 (Annual Return = 10.29%)
S&P 500 Value (Annual Return = 9.33%)
3. The most important. If you are 20 or even 30, you can prob survive a subpar manager. You have 30+ yrs of compounding as long as you avoid #yolo crap and debt. If you are entering retirement and have been under served til now, time is running out. At least educate yourself so you can grade advisor's homework. Without educating yourself how can you get into the back seat of the car? Someone's word? Hope and prayers?
Financial Freedom is not free, but the treasure is worth the pursuit!
I agree with all 3 of these, NYG - many thanks for contributing to the checklist. I tried to encompass #1 in my bullet about risk management, but you've called it out more clearly here.
My goal is to make this checklist a living document that improves as more good criteria are identified.
After decades with a local tied to national firm, we pulled the trigger & went to another advisor. Over the years it appeared that the quarterly 1hour advisor sessions had turned into simply a neighborly chat especially when markets & funds were down.
And few years ago I suppose due to regs we had to start paying separate annual fee for these sessions.
And at some point advisor offered/ suggested to allow the BIG BOYS at their national level to manage our accounts. We agreed since the BIG BOYS HAD to do better, right?
Not so much. I’m cynical but maybe this was to remove blame from local office & paying them a visit? 🙃
Not to sound spooky but last year I had a dream about how bad it was/ would be going with this firm. No kidding.
For past 2-3 years our CPA found errors in the amounts deposited in retirement accounts OVER our allowed. The CPA never said- leave & don’t look back, but as I’m slow, it eventually soaked in.
We used one of the recommendations from our accountant after I ASKED for it.
The new group seems like a solid fit. While new group did not directly criticize the previous decisions etc. They did wonder WHY there were SO MANY different accounts.
I suspect churn & commission generation but we have moved on. Life is too short to worry or be bitter about anything friends.
@adamtaggart Thanks for this. Very helpful. For those of us not living in North America, are you able to add ppl to your list of "recommended Financial Advisors" who are not restricted regarding the jurisdiction of customers they can accept (eg. For those of us who are not tied to the US or Canada)
Timely and Important topic! May I add to your excellent checklist @adamtaggart:
1. Inquire about their performance on capital preservation during the bad times.
A. Dot-com boom and bust
Aug 24 2000 - July 29 2002 (23 months)
S&P Down 47%
B. Housing & Great Financial Crisis
Dec 15 2006 - Nov 20 2008 (23 months)
S&P Down 51%
2. This you can do yourself. check what holdings are actually inside your 401k and IRA funds. Many funds stuff 3-5 other inhouse funds into one, thus basically offering the same mag 7 growth fund across multiple institutions.
Over the long term, 98.6% of all actively managed domestic US equity funds in every major category and 99.8% of all large-cap funds, under performed the S&P 500 Equal Weight Index.
Based on 20-year total returns in USD (per S&P Dow Jones Indices LLC, CRSP, data as of Jan. 31, 2023), the performance of the major funds:
S&P 500 Equal Weight Index (Annual Return = 11.48%)
S&P 500 Growth (Annual Return = 10.88%)
S&P MidCap 400 (Annual Return = 10.84%)
S&P SmallCap 600 (Annual Return = 10.67%)
S&P 500 (Annual Return = 10.29%)
S&P 500 Value (Annual Return = 9.33%)
3. The most important. If you are 20 or even 30, you can prob survive a subpar manager. You have 30+ yrs of compounding as long as you avoid #yolo crap and debt. If you are entering retirement and have been under served til now, time is running out. At least educate yourself so you can grade advisor's homework. Without educating yourself how can you get into the back seat of the car? Someone's word? Hope and prayers?
Financial Freedom is not free, but the treasure is worth the pursuit!
I agree with all 3 of these, NYG - many thanks for contributing to the checklist. I tried to encompass #1 in my bullet about risk management, but you've called it out more clearly here.
My goal is to make this checklist a living document that improves as more good criteria are identified.
You are doing the investing community such a great service at scale. Thank you!
Thanks Adam
Great advice. Also DO NOT be afraid to fire them.
Agreed. They work for YOU.
I know you’ve heard this story a million times.
After decades with a local tied to national firm, we pulled the trigger & went to another advisor. Over the years it appeared that the quarterly 1hour advisor sessions had turned into simply a neighborly chat especially when markets & funds were down.
And few years ago I suppose due to regs we had to start paying separate annual fee for these sessions.
And at some point advisor offered/ suggested to allow the BIG BOYS at their national level to manage our accounts. We agreed since the BIG BOYS HAD to do better, right?
Not so much. I’m cynical but maybe this was to remove blame from local office & paying them a visit? 🙃
Not to sound spooky but last year I had a dream about how bad it was/ would be going with this firm. No kidding.
For past 2-3 years our CPA found errors in the amounts deposited in retirement accounts OVER our allowed. The CPA never said- leave & don’t look back, but as I’m slow, it eventually soaked in.
We used one of the recommendations from our accountant after I ASKED for it.
The new group seems like a solid fit. While new group did not directly criticize the previous decisions etc. They did wonder WHY there were SO MANY different accounts.
I suspect churn & commission generation but we have moved on. Life is too short to worry or be bitter about anything friends.
Sorry for long post, but LISTEN TO YOUR GUT.
@adamtaggart Thanks for this. Very helpful. For those of us not living in North America, are you able to add ppl to your list of "recommended Financial Advisors" who are not restricted regarding the jurisdiction of customers they can accept (eg. For those of us who are not tied to the US or Canada)
Can they beat the risk free rate of return?
If not, fire them.
Can they beat the risk free rate of return after their fees?
If not, fire them.