The Boost: Handing over your portfolio to an advisor

This is the fourth in our series covering the process of choosing a financial advisor. Recently, we've covered the types of advisors, background questions to ask, and advisor compensation models.

In this edition of The Boost, we focus on investment management. What should you evaluate when handing over the reins to your portfolio to an advisor?

What you need to know

A popular misconception is that financial advisors should be investment experts and should be able to beat market returns. In reality, investment management is just a small portion of what many advisors handle. In fact, the average advisor spends only three hours per year per client on investment management, typically relying on rebalancing software or outsourcing investment management.

This will vary depending on the type of advisor – some may take a holistic approach to your wealth. Others, such as registered investment advisors, focus mostly on investment management. You'll also find advice-only advisors that provide investment management advice but don't actually make investments on your behalf.

The questions to ask

Ask your prospective advisor these questions to make sure their approach to investment management aligns with your expectations.

1. Will you directly manage my investments, including making trades, or will that be managed by someone else at your firm or outside your firm?

2. How do you construct my portfolio? Do you invest according to specific models or strategies? Robo-advisors, such as Wealthfront, also follow specific models.

3. Will you actively manage my portfolio to outperform the market, passively invest, or some combination?

4. How will you determine and adjust the right portfolio for me? How will you determine my risk tolerance?

5. Should I expect my portfolio to beat the S&P 500? This is a common source of disappointment with advisors, so it's important to understand how they benchmark your portfolio.

6. What differences in strategy will you take across my taxable brokerage, retirement, and children's accounts?

7. How will you measure and report on performance of my investments?

8. How will you adapt my portfolio as my goals or market conditions change?

9. How involved can I be in setting portfolio allocation and decisions?

10. Will you only use low-cost funds and how will you report any fund fees to me?

11. How will you optimize my portfolio for taxes?

How can Mezzi help?

  • Monitor and track performance of self-managed and advisor-managed accounts against key benchmarks
  • Maximize tax-saving opportunities across self-managed and advisor-managed accounts
  • Avoid funds with high fees
  • Avoid investments that counteract the investment goals of your advisor-managed accounts, or vice-versa
  • Easily share the allocations and holdings in your personally managed accounts with your financial and tax advisors - you can even invite them to collaborate
  • Avoid violations of wash sale rules across personally managed and advisor-managed accounts