14 Questions a True Financial Advisor Answers

My colleague Michael Batnick is working on some research that demonstrates there is very little spread between the best possible ETF mix versus a random one. Look for that later at The Irrelevant Investor, it’s going to be great.

After seeing his work yesterday, it got me thinking about how much more emphasis questions of asset allocation get and how little attention people sometimes give to the outcomes that asset allocation is meant to fund. Tony Isola was thinking about this the other day too, and he came up with a list of questions that advisors are here to help investors answer.

It has nothing to do with which ETF to pick. These are the real reasons why people who have accumulated wealth turn to an advisor:

• How long do I need to work so my money won’t run out?
• What would be considered a “safe” withdrawal percentage from my funds?
• When should I take Social Security; and what strategy should I use?
• Do I need long-term care insurance?
• Now that I am retired, should I invest my money differently?
• How much will Medicare cost and what programs should I enroll in?
• Can I afford to give cash to family members; and if I can, how much?
• Have I updated all my beneficiaries and picked the right people to take over my finances to make the best decisions regarding my health if I cannot?
• What am I going to do all day if my retirement is fully funded?
• Should I take a cash balance or turn my funds into an annuity from my workplace retirement plan?
• Do I own too much of my company’s stock?
• Will my plan still work if we have another “Great Recession?”
• When should I start taking money from my tax-deferred accounts; and how will this affect my taxes?

Some investors can answer these questions for themselves, have confidence in the answers they come up with and then be disciplined enough to stick to a plan based on them. In my experience, the vast majority of investors cannot. Nor should they – transference of expertise and success from one field (like medicine, real estate or law) to the realm of financial planning is not common. Smart or accomplished people are not automatically good with their own money. It’s not a question of intelligence, but of temperament.

One other aspect of this is that it’s important to have someone to bounce ideas off of, preferably someone who is accredited and trained to run the necessary calculations to provide meaningful responses.

There is also an emotional component here. Some separation of decision making is extremely helpful given how emotional we all become over money. And we are right for being emotional about our money – because money is freedom. Money represents options and choice. Who wouldn’t become emotional when

Finally, there’s one question that Tony missed that I think should also be brought into this: Are my family members equipped to understand my portfolio, insurance situation and financial plan should something happen to me? 

We hear clients ask this question aloud, rhetorically, in meetings and on phone calls very often when we’re early in the process. A true advisor identifies this issue, whether prompted by the head of the household or not, and moves to address it. This is not a morbid conversation at all. In fact, it’s the opposite; one of the key features of a successful advisor-client relationship is the peace of mind knowing that there are plans in place for any contingency.

Which renders the question of whether you should use a BlackRock or a WisdomTree ETF for foreign small value stocks significantly less important.

***

You can talk to Ritholtz Wealth Management here if you have questions you’d like answered. Certified Financial Planners are standing by.