Meeting With an Investment Advisor

The focus of my practice is to offer advice and management services for people to get their investments on track. How does this work?

For many people, it is a matter of two meetings. The first meeting we'll have is to gather information and get to know each other. I'm interested in getting the big picture. We fill out a questionnaire. I'm interested in where you are on the path to retirement. Ages, types of assets owned, number of years to desired retirement, etc. are all obviously important. I am interested in whether you seek to finance college educations, your insurance situation, whether your job is secure, etc. I am interested in your saving habits.

In the first meeting, in addition to the basic questionnaire, I have a couple complete a simple risk-tolerance type of questionnaire. I ask questions about your past investment experience. Many times, by understanding reactions to the 2008 debacle, I can get valuable insights into risk tolerance.

I typically spend about 15 minutes discussing my investment philosophy. If you aren't sure if you are interested in my services, I usually cover my philosophy in the first 15 minutes. This is the part where there is no obligation. If there is no interest in the low-cost, low turnover, indexed approach then we'll shake hands, I'll wish you luck, and we'll part ways.

I gather your most recent statements and the list of assets available for investing.

Once I sit down with this information, I begin by ordering accounts starting with the taxable accounts, then the qualified accounts (401ks, 403bs, IRAs, government TSP etc.), then the Roths. Next, I see if it makes sense to reorder investments. Some clients have interest-paying assets predominantly in their taxable accounts. A simple reordering of investments to exploit low-dividend/cap gains tax rates can save big bucks.

Next, I analyze asset allocation. Given your risk-tolerance questionnaire (I pray a couple is somewhat compatible) and other information I've gathered, I come up with a recommended allocation of percentage invested in stocks, bonds, and cash. I like to frame it in terms of the seven models offered by Schwab, ranging from most aggressive to least aggressive. I next look at all investments and figure out actual allocation.

Sometimes people are pretty much all in cash. They may have been spooked by 2008 for example. In any event, we discuss the recommended allocation. I explain that this is a long-term process, that we are moving into choppy waters, and the idea is to get comfortable with a plan and stick with it. For those contributing to their 401ks, etc., I explain that it is beneficial for markets to drop because then assets are cheaper.

Once I've drilled down to the asset level, I am looking for index funds with low-management fees rather than high turnover, actively managed funds with high expense ratios. I am interested in broad market participation in domestic markets as well as international markets. In the bond area, in today's markets, I am recommending shorter-term funds, some high-yield exposure as well as international bond funds. With rates so low, it is risky just to buy the broad bond market.

The second and, typically, last meeting goes over the recommendations in detail. I am looking to see whether you can carry out the investment plan. If I feel you can't, or don't want to, I'll offer to manage your investments at a rate of 0.4% of market value. As part of the meeting, we talk about monitoring the portfolio and rebalancing. I typically rebalance if a sector is 5% out of balance. We talk about the resources you have available at your broker/401k provider. For example, Schwab has portfolio analytics available to clients that makes the process very simple. In fact, they are currently testing a portfolio performance system that will soon be available.

In the second meeting, I also make recommendations in other areas in your financial planning you may lack. For example, you may need umbrella insurance, a will, or tax work. As a fee-only registered investment advisor, I am compensated by my clients--I receive no referral fees. If I receive referrals from someone I refer you to, I disclose it.

If you are several years away from retiring, it is very useful to begin thinking about where your income will be coming from and how much you will need in retirement. If in retirement, it is critical to think through when to take Social Security and how you will manage your assets to ensure you don't run out of money.

I'll leave you with recommended readings and blogs to follow. From time-to-time, I'll check up on you.

Generally, it's a pretty pain-free process. Not at all like going to the dentist!