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When Should You Change Financial Advisors?

The "Groundhog Day" stock market correction has lots of investors casting a wary eye on CNBC wondering if this is the beginning of another major market decline. In just two trading days (FEB 2 & 5) the Dow Jones declined roughly 1500 points or about 8%. While we would urge investors to remain disciplined and not sell in a panic, it may be an appropriate time to reassess the value you receive from your financial advisor.

If you're like most people, it takes a substantial nudge to get you to change an existing business relationship. This is especially true of one's financial advisor. Most people equate satisfactory service with the growth of their account. The market's tailwind of the last 9 years makes that a very low bar - if you haven't seen significant growth in your portfolio, you simply haven't been in the stock market.

A rising tide lifts all boats. As Warren Buffett famously remarked, it's only when the tide goes out (and the market declines) that we discover who is swimming naked.

We would contend a financial advisor adds far more value through comprehensive financial planning than through portfolio management. Here are a few questions to ask yourself to assess whether you are truly getting value form your financial advisor:

Does your financial advisor review financial planning progress with you at least once a year?

A thoughtfully conceived financial plan goes beyond investments. It should cover retirement planning, estate planning, income tax review, and risk management. This plan should be reviewed annually to adjust for changes in your life and financial situation. You should know the answer to the important question - "Am I going to be okay?"

Do you have a written Investment Policy Statement (IPS) that clearly outlines your stock and bond allocations?

An IPS is a crucial touchstone  that outlines your investment strategy, specifying your stock and bond allocations. It serves as a roadmap to ensure your investments align with your financial goals and risk tolerance.

Does your advisor rebalance your portfolio periodically to maintain the stated allocation?

Regular rebalancing is essential to maintain your desired asset allocation and is key to reducing risk and increasing potential returns. How, you might ask? It forces you to buy low and sell high. 

We believe a thorough, well-designed financial plan is the centerpiece of all our client relationships. The investment portfolio, while important, serves the financial plan, not the other way around. If your advisor isn't providing financial planning, it's time to consider a change.