Almost every week, I meet friends and family that have questions regarding their finances. They have enough to start investing and try to follow the markets but not enough to have a solid financial adviser taking care of their stuff. One option could be to build their own ETF portfolio but to many that seems too complicated. So what to do? Meet a broker that will be able to manage your portfolio? That is an option that many end up choosing.

The Problem With Hiring A Financial Adviser/Broker

The main issue though is that most people are unable to judge how good of a job their adviser is doing. Are you making enough returns? Paying too much fees? Is he taking care of the portfolio as if it were his own or his parent’s? Or is he simply trying to collect that commission every month? I personally feel like you can get a very good idea of how good of a job he/she is making by looking at the following things:

1-Portfolio Fees

You should be able to either research yourself or ask your broker. What are the fees in your portfolio holdings? I’m talking about annual fees that are charged in mutual funds and ETF’s. Anything above 1% is high in my opinion. Ideally, you would hold ETF’s and have fees that are closer to 0.25% per year. You should also ask if your adviser charges you an annual fee. Some charge a % of assets, that can be a good thing as they have an incentive to direct you to lower cost solutions.

2-Number Of Holdings

If you have more than 10 different funds, I personally think it is a bad sign. Long term investing should be very simple. It should be all about passive (index based) long term investing and there is no point in holding 10 different US stock funds. There can be a few different reasons why you would be owning a lot of these and in some cases those are good reasons but as a general rule, I would say that it’s not a good sign.

3-Number Transactions

If you believe (as I do) in a simple approach to long term investing, then trying to keep things simple and avoid costs should also mean having little maintenance to do. Even a dividend investing approach should not require several trades each month. If too much activity is happening, it might be a good idea to ask why these trades are occuring. Again, there might not be anything wrong with it but I personally don’t think it’s a great sign.

4-Bonds/Fixed Income Approach:

I have read so many interesting things about how bond funds outperform in so many different ways. It’s very rarely a good idea for an individual or even a broker to start buying and selling individual bonds because of the fees involved in trading non-listed products. So I would be very curious to see two different aspects:

-How much of your portfolio consists of fixed income products? (read more about how much I think you should own here)
-What kind of bonds are being bought? Individual ones? Funds? ETF’s?

5-How Often Do You Hear From Your Broker?

No matter how things are going, how much your circumstances have changed (or not), you should be hearing from your broker at least twice per year and have a good sit-down at least yearly. Why? Because it’s important to take a look at your situation, your goals, at adjustments that might be needed, Believe me, most advisers do not spend much time looking over your stuff when they’re not talking to you so you need to make sure that they are looking over your accounts on a regular basis.

So I’d be curious to know, after reading this, how good is your adviser/broker?