How should you measure success with your financial advisor?

Unless you have been living in an incredibly remote area, you may have noticed that the stock market has taken a big hit in 2022. With that being said, people everywhere are wondering how they should measure the work of their financial advisor.

Fact Checked by

Matthew Schwartz CFP®, CRPC®

This question makes a lot of sense based on the current economic climate where people are curious about how they have fared in relation to others in a similar situation. So, what should you look at when measuring your financial advisor?

While many want to look at their financial returns as the key indicator of success or failure, it is important to consider multiple factors when evaluating your financial advisor. Some are tactical but others go beyond the numbers. Here are three questions to ask yourself when you are evaluating your financial advisor. 

Do I have clear expectations about what to expect in my accounts during good and bad financial times?

Have you ever been blindsided? Whether in a meeting or on the road driving your car, encountering something you didn’t expect never feels good. Having proper expectations helps you balance your emotions and responses. Even if you think that the situation is going to be less than ideal, having proper expectations will help prepare you. 

How has your financial advisor communicated with you about good and bad economic conditions? Did they set clear expectations of potential loss in given markets? Did they communicate the limited potential gains based on the risk level of your investments? Without this conversation there are two risks to you as the client. 

First, your expectations could be way off and, regardless of performance, you could find yourself disappointed. Even if the management style accomplished the goal, if the goal was unclear it will not feel like a win. 

Second, without this conversation your advisor could be lacking accountability for executing a strategy. How do you measure something that has no clear goal?

Did I know the plan for maintaining my lifestyle regardless of market conditions?

This question will apply more to those who encountered this dramatic market in retirement. While a big balance can be great to look at in retirement, continued income is also very important. The whole goal of saving pre-retirement is to build a future source for replacing your paycheck. 

During down markets, many retirees become fearful that their withdrawals will decimate their long term financial future. Selling at the bottom of the market to meet monthly expenses can be painful. 

The question is…How real is that pain? Meaning, was there a plan in place to provide income without dramatic impact or no impact on your long term financial situation? If so, although no one likes a down market, you can mentally rest assured your plan is working for you. 

If you didn’t have a plan for this type of situation, it may be time to look for a firm that does more than just investing but rather, creates a true financial plan. 

Does my financial advisor know what the money means to me?

At first glance this question can seem strange, but it is key to your advisor serving you well. The balance of a portfolio is not just a number. It is a representation of sacrifice, hopes, dreams, and aspirations. 

When you lose money in the market it’s not just the dollar amount that you are thinking about. Often it is the time it took to build the account – and the hopes we had for using those funds – swirling around in our thoughts.

If your advisor knows those things, then it becomes less of a logistical conversation and more of a heartfelt one. When your emotions rise they will truly know the why behind that.

The quality of your relationship with your advising team is also an indicator of how successful your retirement journey could be. If you want to learn more on this, check out our blog on the Top 3 Questions to Ask Your Advisor Before Retiring.

While we know financial advisors shouldn’t be making promises about performance, they can help set expectations, outline your strategy for maintaining your lifestyle, and help you understand what the money means to you.