My Yearly Investment Review
Beyond Performance: Asking Your Advisor the Right Questions Annually
All too often, the annual meeting where you review investments with your advisor is a useless exercise. The advisor spends most of the time discussing last year’s performance—which is unchangeable—or predicting how the market will perform over the next year—which is unknowable.
Here is a better approach.
Arm yourself with some questions to talk over with your advisor. Send them two weeks prior to the meeting to give your advisor time to prepare.
How is my portfolio designed to meet my income and cash needs now and for the rest of my life, with enough money to leave my children an inheritance aligned with my values?
This is your advisor’s prime objective: managing investments to generate income for the life you desire. If you never have a fuller conversation about your priorities, the advisor will aim to maximize your money. Maybe you don’t want to bequeath it all to your kids when you die. You may want to retire early and visit every national park in the U.S. Perhaps your dream is to endow scholarships at your alma mater or build a house overlooking the ocean. How is the advisor to know unless you make your desires known?
Will you review your firm’s investment process? Tell me about the experience and credentials of the investment team. Has the team or the process changed in 2025? How will this impact my portfolio?
Good investment advisory firms have talented people working together in a disciplined process designed to craft risk-appropriate portfolios for their clients. A good process has clear objectives, uses an evidence-based framework, manages risk, and compares expected performance with actual performance and adjusts accordingly. You are looking for consistency with incremental improvements.
Let’s acknowledge you’re probably not an investment expert. You may not understand all the details of this information. But it is reassuring to know that you have a highly competent team following a time-tested process to manage your portfolio through the ups and downs of the economy.Is there anything you have learned about managing money this year that will benefit me?
You are looking for a thoughtful answer to this question. The answer may offer a glimpse into the advisor’s perspective, such as, “I learned how to help clients manage their emotions during stressful times.” The answer may involve the nuances of managing money. If what you’re hearing is highly technical, ask for clarification. You want your advisor to demonstrate they can explain complex topics in simple terms.
Show me any trades you made to harvest tax losses in my accounts last year. Include the date of each trade. When did you last rebalance my accounts? Show me how my portfolio looked before and after rebalancing.
Wealth managers typically charge a percentage on the assets they manage. Unlike most other professionals who get paid for specific jobs such as filing your tax return, the manager gets paid the same regardless of how much time and attention they focus on your situation.
Tax loss harvesting and rebalancing often increase your after-tax return over time, and are easy to overlook. Tax losses should be harvested when available, and not just at year end. Portfolios are generally rebalanced either annually, or when the market has moved sharply and leaves the portfolio out of balance.
Asking the advisor to show you when they harvested tax losses and rebalanced your account keeps them on their toes.Please review the investment products in my portfolio, and why you have chosen them. Help me understand why you selected higher cost products and more complex products such as structured notes or option strategies. Is there a simpler and less expensive strategy to accomplish the same objective? Do you or your firm earn any additional compensation when I own more expensive and complex products? If so, tell me how much.
There is nothing inherently wrong with owning a more expensive or complex product. They may offer benefits to you that can’t be accomplished in a less expensive or simpler way.
Or, maybe you want what I like to call “a cocktail portfolio.” Sometimes my wealth management clients found themselves in conversations at parties where guests liked to talk about the sophisticated investment strategies they benefited from. Having one of these products gives you something to talk about when the discussion turns in that direction. Nothing wrong with that if that’s your preference–it’s just not necessary for a well-managed portfolio.
After listening carefully to the answers to these questions, you should have a better understanding of your advisor’s approach to tending your money. Done properly, the annual review can help you evaluate and enhance your relationship with your wealth manager. Hopefully, your confidence in the manager and the investment team has grown as a result. If that’s not the case, it might be time to look for another manager. Maybe this isn’t the right team for you.
Until our next conversation,
David
Small Steps & Worthy Questions
Asset management is not a competitive sport where the person with the highest rate of return or the largest portfolio wins. Excellent investment advice is all about building portfolios that give you the income to satisfy all of your needs, most of your wants, and– if you are lucky–some of your wishes. Until the day you die.
In the past, have you focused solely on your portfolio’s rate of return to assess your investment advisor’s performance? Are you expecting your advisor to predict with precision the market’s short-term performance? Isn’t that an unreasonable expectation?
What will give you confidence that your investment advisor is managing your money competently? It’s vital to focus on things within your advisor’s control.
Please consider sending this blog to friends or family who would find it useful to have a list of questions to generate new conversations with their money manager. I would love to hear what happened as a result.