How to tell if your financial adviser is delivering: compare returns and look for hidden fees

详细摘要

What you need to know about performance reporting to figure out how your financial adviser is doing

How can you measure the value you are getting from your financial adviser? You can look at the level of service, communication and advice, but what most people want is to know is how their investments have performed.

Performance is quantifiable – a simple criterion for evaluating your adviser. Except it’s not always that simple because the numbers you get from your adviser might not give you everything you need to reach a definitive conclusion.

There are two crucial factors for evaluating your investments: how your returns compare to relevant market returns, and whether all fees have been incorporated into the calculations.

Performance figures presented on their own have little value. You need context to know how your performance stacks up against the overall market. If your investments rose by 10 per cent but the overall market rose 20 per cent, that’s a poor result.

A benchmark is a yardstick against which to measure your returns. And in many cases, you will not see a benchmark alongside your performance numbers in the annual statements, presentations, or in e-mails from your adviser. Note that financial advisers are not required to provide one, and in my experience, many do not.

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If you do see a benchmark, give your adviser bonus points. Then, determine whether it is an appropriate one. Appropriate means the benchmark reflects how your portfolio is invested. Your asset allocation – the mix of stocks, bonds, and cash in your accounts – should be similar to the composition of the benchmark. Different asset classes have different rates of return, so it’s important that you are comparing apples to apples.

For example, if you have a portfolio that has 80 per cent stocks and 20 per cent bonds, the benchmark should also have 80 per cent stocks and 20 per cent bonds.

If your adviser has not provided you with a benchmark, you can find one for yourself.

文章开头，摘自The Globe and Mail (Report on Business)。如需阅读全文，请前往媒体网站。