An adviser’s main job is to help you achieve your financial goals, not produce great returns.
But, understandably, investment returns often become the focus of client-adviser relationships. An example can be found in a recent question from a reader of the Carrick on Money newsletter. This individual is a retiree with a high six-figure account who pays a perfectly reasonable fee of 1 per cent. He describes his adviser as attentive, and helpful in sorting out his finances.
The great vibes end with the returns produced by this adviser, which rarely hit the mutually agreed upon minimum target of 6 per cent. This reader wants to know whether he should look for another adviser, and what the costs of switching might be.
Whatever the transfer-out fees are, a new adviser will almost certainly cover them to land a sizable new account. The bigger issue is whether the massive effort of changing advisers is worth it.
My quick answer is a provisional no. First, try to work things out with the current adviser.
The first point of discussion between client and adviser should be the gap between actual portfolio returns and the 6 per cent minimum target over the medium to long term, which is three years and longer. Can the adviser put this gap into context? Maybe lower returns have come with less dramatic ups and downs. As for near-term performance, it’s pointless to judge portfolios on returns over a period of a year or so. Any portfolio can over or under perform in a brief period – it’s consistency that matters.
A second point of discussion is the 6-per-cent target return, which seems aggressive for a retiree on an after-fee basis. Did the client push for this target return, or did the adviser offer it up? Either way, does 6 per cent need to become 5 or 4.5 per cent? And, if so, what does that mean to the client’s financial plan? Might his money run out, or is this a matter of having a smaller estate on death or withdrawing less from year to year?
A chat that goes along the lines of ‘what do we have to do to get a return of 6 per cent’ will very likely end badly. Higher returns mean more risk from stock market declines, which tend to hit retirees hard in an emotional sense. Even after the recent trade war-driven stock market volatility, returns in recent years have been exceptional. Leaner times are coming.
