What Type of advisor makes sense?

chapin-hill-advisorsJust as there are many different types of professionals in almost any field (doctor, lawyer, architect, builder), there are many different types of advisors. Once someone has a certain amount of experience, their knowledge base should be similar to other advisors in the same field. Each advisor will have based their personal philosophy on their own experience over time. Advisors have very different styles from one another and finding a match to not only the type of advice you need but a communication style is important.

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You should be careful about comparing what a hedge fund manager or money manager may provide you with in terms of advice versus an investment advisor. I find all too often, people assume that anyone who works on Wall Street can give them the advice they are seeking. If you are seeking someone to simply manage your money in a specific style, then perhaps a single money manager is appropriate. If you are a sophisticated investor and looking for an alternative strategy, then a hedge fund manager might be the right choice. But if you are seeking overall financial guidance, portfolio construction, asset allocation advice as well as selection of the most appropriate managers, then an investment advisor or financial advisor is the best fit.

What Do You Expect?

Are you looking for a selection of turnkey portfolios with documented track records to implement? Do you expect to have a tailored portfolio with different types of investments to meet specific needs such as retirement, college education, a down-payment fund, etc? Do you want to send in ideas and get feedback from your advisor? Do you want to have input and make decisions jointly? Do you wish to manage one portfolio and have the advisor complement your style?

I find that many people are not clear on what type of advice they are seeking. I also find investors can mix up apples and oranges and think they have diversified their portfolio but the reality is that they have duplication among managers or advisors. It can be truly confusing as there are so many different types of advisors. Large firms, small firms, boutique shops. Advisors who specialize in fixed income or small cap stocks or trade. Some advisors take their portfolios ‘off the shelf’ from their firm’s research team while others manage hands on and still others combine styles.

Benchmarks …

I like to compare benchmarks to speed limit signs. If you are driving down a country road at 35 mph, you could be going 10 miles over the speed limit or 10 miles under it. But how would you know unless you saw a sign? That is what a benchmark does for your portfolio. It is simply a combination of indices which most closely mirror how you are invested so that you have a way of judging how you are doing. Hopefully, the benchmark has been chosen with your risk tolerance and goals in mind so that it has relevance.

I have been shocked at how often I find investors with sizeable portfolios and no benchmarks. It is not enough to simply list the world indices. If you have a portfolio that is 60% fixed and 40% equity with that equity split among various asset classes, how does comparing that to the S&P or the Emerging Market index tell you how you have been doing?

While fixed income portfolios can be more difficult to benchmark, there should be a comparison. Recently, I met with a frustrated investor whose advisor manages a fixed income portfolio, never provides a benchmark but simply says ‘look at the gains’ in your portfolio. That is not a good enough answer. You may want to choose a selection of fixed income benchmarks to give you a general sense of how the markets are performing to compare your overall performance.

Taxes are important….

While you do not want to tax-tail to wag the dog, taxes have an impact on your return. If you are choosing an advisor who has turnkey portfolios or investing with a money manager who has a definite style and track record, then you should expect them to convert your portfolio to theirs rather quickly.

However, if you have highly appreciated stocks or bonds, the tax hit can mean that you lose a fairly sizeable portion of your portfolio to the tax man within the year meaning you have that much more to make up before getting ‘even’. If that coincides with poor performance in the markets, you have compounded the issue and it could take a very long time to get back to even. Since bond prices have rallied for several years, you may have tough decisions to make in managing a fixed income portfolio going forward.

Ask the question when interviewing a new advisor…”What can I expect in terms of hands on tax management of my portfolio?” and “how quickly will my current positions be liquidated and invested in the new portfolio?”

Communication is Key….

Are you clear with your advisor about how often you wish to be provided with updates? What type of communication is best for you? Do you like emails? Market comments? Phone calls? Do you wish to set phone appointments rather than random calls? Will you make the time to sit down for formal quarterly reviews? Are webinars good for you? Do you prefer in-person meetings?

What type of updates do you wish to have? Do you want general market advice? Economic news? Or simply “how am I doing?” updates? It is important to be clear up front and be sure your expectations meet the service level the advisor is prepared to provide.

Does the style of the advisors communications meet with yours? Do they speak “English” to you? Once again, I am amazed at how some advisors may berate their clients or speak in a condescending manner. We recently had an incident where the client could not get statements on an investment and when she asked the advisor to provide them, she was met with a condescending scolding on the phone. Frankly, I was shocked and appalled.

Be clear about what you need up front and along the way. Most people do not like confrontation and switching advisors can be painful. So make sure you communicate openly. If you are not getting what you want or the communication style makes you uncomfortable, then it is probably time to seek a new advisor.

About Kathy A. Boyle
President/Chapin Hill Advisors, Inc.

kathy-boyleKathy Boyle is founder and president of Chapin Hill Advisors, Inc. Chapin Hill Advisors, Inc. provides consulting and planning services for families, family offices, high net-worth individuals, businesses as well as not for profit organizations. Chapin Hill also offers investment advisory services including asset allocation as well implementation of both traditional and alternative investment portfolios.

Kathy is a regular commentator and guest on national television shows such as CNBC, Fox Business Network, NBC’s Nightly News, NY1, Bloomberg radio and personal-finance TV shows. Kathy has also been interviewed extensively for many publications, including The Journal of Financial Planning, Wall Street Journal, Research Magazine, and Investment News.

Kathy serves on the advisory board of the Westchester Land Trust and the advisory council of the NYC Chapter of the American Heart Association and serves on an environment planning committee in Pound Ridge, NY. She is very active in her local community and rescues homeless animals.

Registered Investment Advisory services are offered through Morse Capital Partners in Richmond, VA.

Disclaimer: This information is provided for general information only, and is not intended as personalized investment advice. Reading the above is in no way intended to be a substitute for individualized investment advice, and no conclusions should be drawn from this information regarding any potential investment. All readers should contact their professional investment, legal and tax advisors before entering into any investment or investment agreement. Past performance of any index, market, sector, or investment is not necessarily indicative of future returns. Any index referenced herein references historical results. They are also unmanaged and cannot be invested in directly. Some information in the above is gleaned from third party sources, and while believed to be reliable, is not independently verified. Please contact Kathy Boyle for more information at [email protected].


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Adam Green

Adam Green is an experienced writer and fintech enthusiast. He he worked with LearnBonds.com since 2019 and covers a range of areas including: personal finance, savings, bonds and taxes.
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