Financial advisors: Is yours AWOL?

Financial advisors’ phones started ringing off the hook around July, said Dave Carpenter in the Associated Press. That’s when clients opened their quarterly investment statements and got a real glimpse of how big a bite the bear market had taken out of their holdings. “For many clients who had relied on advisors to steer them through a turbulent market, steep drops in the value of their portfolios from as recently as a month earlier” came as a shock. When a stock market struggles, many investors naturally question the wisdom of their advisors’ advice. Unfortunately, “there’s no simple litmus test” to tell if you’re being led astray. There are, however, a few warning signs. First and foremost, does the advisor return your calls? A bad advisor will give you the runaround. A good one will reiterate the plan for your portfolio, both for the short and long term.

Too many advisors fail to educate their clients in advance about how to handle an unruly market, said Jonathan Burton in MarketWatch.com. “When your money is at stake, you’re entitled to realistic expectations about how a down market can affect your finances.” If your advisor clams up when you ask questions about a bear market—or about anything else—start looking elsewhere. “Advisors should be communicating at least monthly with mass e-mails,” says Jack Waymire, founder of the Paladin Registry, which helps individual investors find financial advice. Of course, listening to your concerns is different than agreeing with them, and the last thing you want is an advisor who gives in to your “emotional impulses” or who makes “hasty trades” in an effort to appease you.

Indeed, one of the key things clients pay advisors for is discipline, said Chuck Jaffe in WallStreetJournal.com. You want an advisor who can devise a financial plan that suits you, manage that plan, and “see it through during even the darkest market periods,” when you yourself may have despaired. While the plan can evolve to account for changes in the market or your own situation, be wary of any advisor who takes a drastically different tack for the sake of propping up immediate returns. That will cost you in the long run.

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