WHAT TO EXPECT FROM YOUR FINANCIAL ADVISOR

By Chris Dupuy of Merrill Lynch

Deciding to work with a financial advisor is an important step in reaching the financial goals that matter most to you. The value of having a long term financial strategy in place,particularly for those approaching retirement, leads to a greater sense of confidence, more optimism, and reduced fear, according to findings from the 2006 Merrill Lynch New Retirement Study. In fact, individuals who have a comprehensive retirement plan are more than five times as likely to feel well prepared financially vs. those who do not, and significantly more likely to look forward to retirement.

To maximize the value of your advisor relationship, it’s essential to have an understanding of the potential scope of your advisor’s role, the investment process, and what you want and expect from your partnership.

Step 1: Map Out Your Goals

Investment goals vary by individual, so of course there is no one size fits all financial strategy. In order to ensure a customized and successful strategy it is important that you and your advisor communicate openly and honestly about what you hope to accomplish. It is through consistent and candid discussions that your advisor can craft a plan tailored to your unique situation.

In one of your first working sessions, it’s likely that your financial advisor will ask you a series of questions about your personal circumstances to better understand your life objectives, your investment time horizon, as well as your risk tolerance.

A good advisor will listen carefully, take notes, and repeat back to you your goals and concerns to make sure that he or she understands them thoroughly.

Don’t be concerned at the initial stage of your advisor relationship if you don’t have clear goals with timelines and specific objectives. Most new clients cannot clearly articulate their targets in monetary terms, but may have life goals such as sending children or grandchildren to college, purchasing a dream home or securing a comfortable retirement.

Keep in mind that it is one of the key roles of the advisor to help draw this information out and translate that information into a productive and effective financial strategy to meet those goals.

Oftentimes, goals such as retirement are not a singular event, but instead a more comprehensive lifestyle shift that require a higher level of understanding to accommodate. According to the 2006 Merrill Lynch New Retirement Study, 71 percent of Americans say their ideal retirement involves working in some capacity, and two thirds of those who plan to work in retirement want to change careers. A good advisor will be able to incorporate these ideas for a career shift into your overall financial strategy to ensure that you have the resources to make the transition.

Step 2: Assess Your Financial Situation

The next step your financial advisor will lead you through is a complete inventory of your assets and liabilities. It’s helpful to have copies of bank, brokerage, IRA, credit card and mortgage statements on hand to provide your advisor with your total financial picture. Copies of insurance policies,including homeowners, umbrella and long term care if applicable, are helpful as well. Also be sure to bring information on workplace savings programs such as 401(k) or 403(b) plans so your advisor can see what investment options you have and incorporate them into your overall strategy.

Step 3: Determine Your Asset Allocation

Once your financial advisor has a clear idea of your goals and understands your current financial picture, it will be time to craft an investment strategy with targeted portfolio allocations in stocks, bonds, cash and other investments that might be appropriate for your time horizon and risk tolerance. Keep in mind that protecting against losses in the midst of market volatility may be more important over the long run than seeking the highest returns.

After you have an investment strategy in place, your advisor will keep tabs on your portfolio’s performance and should contact you if changes are recommended. Unless you give your advisor permission to make discretionary trades, he or she will need to notify you before any transactions are completed.

Step 4: Monitor Portfolio Performance

If your goals and circumstances remain the same over time, you should maintain your ideal asset allocation through a strategy called rebalancing. For example, if the stocks in your portfolio out perform your bond investments, you may become too concentrated in stocks and too light in bonds. At that point you and your advisor should meet to discuss what to buy and what to sell to bring your allocation back to targeted levels. At minimum, you and your advisor should have a portfolio review once or twice annually.

Aside from monitoring asset allocation, your financial advisor should also compare your investment performance against relevant benchmarks. Of course, you cannot simply compare your overall performance with the S&P 500® Index; you may have a large allocation to other asset classes such as bonds or perhaps you hold a significant percentage in international investments. A good advisor will construct a customized benchmark based on the components of your portfolio to make sure you’re not suffering inadequate returns for your level of risk.

Step 5: Maintain Communication with Your Entire Team

The frequency of communication between you and your financial advisor should be determined largely by your comfort level, and whether you prefer to interact in person or via phone and e-mail. Any time you have a life event such as the birth of a child, a divorce or a death, or if you simply don’t understand your statement or need an answer to a specific question, you should feel comfortable calling your advisor immediately. Otherwise, expect monthly statements and in person meetings either quarterly or twice a year.

A good advisor will also stay in touch and work closely with your other professional advisors, such as your attorney or CPA. In fact, it’s a good idea for your financial advisor to arrange a meeting with these other professionals early in your relationship so that he or she will be able to more effectively coordinate all aspects of planning.

Like any successful relationship, working with a financial advisor takes effort and commitment from both of you. In the short term, the right financial advisor can be extremely rewarding in terms of providing clarity and focus in your financial affairs. Over the long term, by maintaining an ongoing process of setting goals, creating and implementing strategies, and measuring progress, the relationship can evolve and grow into an essential partnership between you and your advisor.

Asset Allocation does not assure a profit or protect against a loss in declining markets.

The 2006 Merrill Lynch New Retirement Study: A Perspective from Individuals and Employers was released in May 2006. For more information on the study, visit:
www.totalmerrill.com/retirement.

Chris Dupuy is the National Sales Manager of Global Private Client at Merrill Lynch.

© 2015 TLC Magazine Online, Inc.