How’s That Working For You?

By Mark Folgmann


I was listening to a local radio show about money last week when a small business owner called in to discuss a financial concern. The caller asked the host if he thought it would be advisable for her to listen to her financial advisor who was suggesting that she move her SEP (Retirement Savings Account) into an Annuity. She went onto say that she has been funding her SEP for 20 years and the account balance was currently less than she had deposited over the years. At this point the host went into a five minute review of annuities. Both seemed pleased that the current advisor had disclosed the fact that the cost could be as high as 3 or 4 percent per year in the new investment. At this point, I believe they decided that it could be a viable option to move her SEP into an Annuity but were not entirely certain on this transition.

What are you thinking and what will it take for you to get rid of your advisor? Must you lose all your money? At some point we must ask the right question and it is not, "Should I allow my advisor who has not figured out how to make any profit in 20 years invest my money for another 20 years in a product that cost 3-4 percent each and every year?"

Dr. Phil says it best when he asks “How’s that working for you”? In this case, the right question is, "When do I re-evaluate my advisor?" I would think it must be before you spend half of your investing life and show zero growth on your capital. Current surveys show that as high as 75 percent of investors are questioning their advisors and are seriously considering a second opinion. I believe this is an excellent time for a second opinion due to the strong rebound we experienced last year. Even if you had lost half of your portfolio in 2008, you should have had a strong recovery in 2009. This puts most people in an excellent position to re-evaluate the advice they have been receiving. A partial list of questions I might ask myself in this re-evaluation may include: Did my advisor provide me with an asset allocation that was appropriate for my age and risk tolerance? Was my advisor meeting with me throughout these troubled times? If we had losses in our holdings, did we harvest losses in order to reduce current and future taxes? How often did we rebalance our portfolio in order to take advantage of the market fluctuations? Or maybe the best question is, "Did my advisor have a prudent and reasonable game plan prior to the turmoil that allowed me to sleep at night with the feeling that he was as concerned with my financial well-being as I was?" If all of these things happened over the last 2 years you should have recovered all your losses and be ahead of the game at this point. If that is the case, you have a prudent advisor and have no need to look around. Make sure you thank them in some special way. If not, start your research and educate yourself before the next storm arrives. Make no mistake, it will rain again.