7 questions to ask when evaluating your wealth manager

While it may be tempting to let your wealth manager run on autopilot, it is not always advisable. Ultimately, it is your wealth that’s at stake. It is down to you to monitor what your wealth manager does and make the decision to switch if necessary. Here are the key questions to ask:

1. How have we fared compared to the benchmark?

If your returns are based on a benchmark index, how have your investments fared? Ideally, you want performance that outperforms the benchmark. So if the benchmark index is showing returns of 7%, you would want to see 7.2% or higher. If it’s at – 4%, you would want results of – 3.8% or better.

Do note, however, that some people consider this an unfair method of evaluating a wealth manager’s performance and there is some truth in that. Some wealth managers take a more holistic, long-term approach, rather than actively trying to beat the market.

On the other hand, some investors insist that wealth managers should be able to outperform the market, as it is part of what they are paid fees for.

It is up to you to decide whether or not your wealth manager should outperform the market. If you are not happy with the outcome, do consider making a change.

2. Have you prepared a written report?

When making your evaluation, make sure you have more than a verbal conversation. A good wealth manager should have written reports, and will walk you through these.

You need to keep these reports for comparison purposes. If your wealth manager changed your asset allocation two years ago for better returns, then check the latest reports to see if the plan worked. You also want to look out for certain disparities, such as a sudden change in the profile of stocks you are holding. What’s the reason? Is it an attempt to capitalise on industry knowledge, or to tiptoe around the fact that the chosen stocks have performed badly for several quarters?

You are likely to miss these details if all you have is a quick phone conversation.

3. How are you going to execute your plans?

Even if you’re not a finance expert, you can gain something out of this question. What you’re looking for is not so much a “correct” answer, but attention to detail.

A good wealth manager can go into excruciating detail on what they’ll buy, when, through whom, and why. They will be able to point out past records that support their decisions, and give you specific dates and numbers.

A bad wealth manager will give you nothing but “high level” answers. They may answer with a lot of vague business quotes, or have no clear plans on how to execute what they’re saying.

4. How much have i paid, compared to my returns?

Fees and commissions are part of the cost of investment. For example, a typical hedge fund may charge a management fee of up to 2% on assets under management, with performance fees based on net profit of 20%. The wealth manager may also earn entry and exit commissions on the amount you commit. To determine actual performance, you can’t just look at the fund’s stated performance but the returns after all fees are taken into consideration.

A simple way of determining performance, if you dislike detailed number crunching, is to ask how much you were charged, versus how much you made. Note, however, that it is inaccurate to make a judgement based on a single quarter. You should look at the numbers over a period of at least five years, as this will give a fairer estimate on whether you’re getting your money’s worth.

Don’t just look at returns either – do remember to factor in other services your wealth manager provides, such as getting your trust funds settled or helping to deal with your taxes. Decide if these value-added services is worth what you’ve paid.

5. What could we have done differently?

If there was trouble or a serious loss, you will receive many explanations on why it happened. The key question to ask is “What could we have done differently?”

When you ask this question, it reveals a large part of your wealth manager’s decision making process.

An answer along the lines of “nothing” is one of the worst responses. It’s honest, but it often indicates a wealth manager who lacks the flexibility to respond to different circumstances. A good answer is a frank discussion of precautions or responses that could have taken place, and a system to prevent repeat disasters.

6. Which milestones have we reached?

In long term financial planning, milestones are crucial. Examples include having dividend pay-outs of $10,000 a year by age 40, or owning your third or fourth property within 10 years – these will vary based on your own goals, which you would have planned with your wealth manager.

If milestones are reached or exceeded, you know you are in competent hands. If certain milestones are not met, or have changed, your wealth manager should be able to explain corrective measures.

7. How has the portfolio been changed to cope with recent events?

If there has been an upheaval in the markets (spot gold price fall, Chinese stock market plunge, etc.), what is your wealth manager doing to cope with it? A good wealth manager would have a well-defined macroeconomic perspective of the situation, and be able to explain how each event affects your portfolio specifically.

They will be able to answer questions relevant to your portfolio. Which of your assets are affected? Which of them are now liabilities? What should you consider selling or buying, and when?

If your wealth manager’s response is to do nothing – because they feel it is an appropriate cause of action – then evaluate their decision during the next quarter. Were they right to do nothing, or have you suffered losses as a result?

Never assume that all wealth managers are equal – rather they vary in competency, speciality and access to investment products. Not all wealth managers will suit your needs so it is important to ensure that your investment goals are interests are aligned.

You can start the process of finding the right professional to manage your wealth by trying our smart online tool. Or, if you would like to discuss your situation further with our straight-talking team, please do get in touch here

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