When stock and bond markets start to buck and plunge -- like they're doing now -- many investors get nervous about their investment strategies, and look for a little professional hand-holding. After all, one of the main reasons to pay a pro for financial advice is to get the customer service you need to ride out challenging markets without losing sight of your long-term objectives.
In dealing with a financial adviser, though, the question inevitably arises: How much personal contact should you expect? Unfortunately, the answer often depends more on the way your adviser is compensated than on your real needs.
How You Pay for Your Adviser's Phone Calls
On the one hand, those who work with stockbrokers and others who get paid on commission should expect to hear from their advisers fairly regularly. But often, those calls are merely to solicit buy and sell recommendations for their investment portfolios rather than to talk about bigger-picture financial issues. Unsurprisingly, if brokers only get paid when clients buy or sell, then their employers typically pressure them to boost their commissions.
On the other hand, fee-based financial advisers often have the opposite incentive. These advisers often get paid a percentage of the total assets they manage for you. The optimal arrangement for them, therefore, is to give you just enough personal attention to keep you as a client, and spend as little effort as possible to get that fixed fee.
Overall, regardless of the ways they're paying for it, clients frequently don't feel that they're getting the advice they need.
Even among ultra-wealthy clients, a recent poll from investment-services provider SEI found that although 39 percent of those surveyed are most confident working with a wealth adviser to help handle tough financial questions, 57 percent believe their wealth advisers aren't giving them all the information they need in order to assess their investment risks. As Michael Farrell, managing director of SEI Private Wealth Management, noted, the solution "comes down to having frequent and meaningful communication with clients in order to arm them with all the information and advice they require to make confident decisions."
If even the ultra-rich aren't getting the level of service they want, imagine how much harder it must be for those with more modest assets -- and less income potential for the advisers who serve them -- to get the attention of their financial professionals.
How Often Is Often Enough?
Obviously, different clients need different things from their financial advisers. Some will want frequent feedback, while others will be content to establish a plan and stick with it. You might want high levels of contact early on as you establish an investment plan, and then be willing to accept less contact as changes become less necessary and frequent.
But there are some objective minimum standards that you can fairly expect good financial advisers should meet.
For instance, the standards that govern the Chartered Financial Analyst designation for investment professionals state that clients should have their baseline investment policy statements reviewed and updated at least annually, as well as when major changes take place in their lives. For instance, after an event like a marriage or a birth of a child, revisiting your financial situation is beneficial.
Perhaps most importantly, advisers should tell you at the beginning of your working relationship how much interaction you'll have and in what form. Setting expectations helps you hold your adviser accountable; if an adviser doesn't deliver the promised level of service, then you'll know it's time to look elsewhere.
Get the Service You Need
Financial advisers will earn thousands of dollars over the course of your lifetime to provide you with the services they offer. It's your right to claim every penny's worth, and the key to a successful adviser relationship is finding an investment pro who'll your goals the top priority.
10 Signs You're In Worse Financial Shape Than You Realize
The Market's Getting Scary: Has Your Financial Adviser Called You Yet?
Financial planners suggest you have a minimum of three months of living expenses in a savings account, but some say 12 months is better. If you don't have any savings, you won't be able to pay your bills the minute your car breaks down, you have an unexpected trip to the emergency room, or you're unemployed. The problem can compound if you put those expenses on a high-interest-rate credit card and are unable to pay it off for a long time.
While an occasional slip-up in your checking account may not mean much, if you've paid overdraft fees more than once, you're clearly spending on the edge of what your paycheck can support.
Those "convenience" checks are something you should shred when you get them. You're simply expanding your debt level by paying a bill with a credit card, which will mean you'll pay hundreds or thousands of dollars in interest rather than actually paying that bill.
This move will definitely hurt your credit score: Using more than 25 to 30 percent of your credit card limit will lower your credit score a little, and going above it will drive it down fast. On top of that, you'll have to pay over-limit fees until you can get the balance back down, and you're likely to pay a higher interest rate on that credit card and on other future lines of credit.
Making the minimum payment on time every month won't hurt your credit score, but you'll never, ever make a dent in that credit card balance that way. If the minimum payment is all you can afford, then you've got some belt tightening to do.
If you're entering every possible lottery hoping for a big bonus, or counting on an inheritance, you're expecting something to solve your problems that may not come to pass. Put a plan into place to handle your own finances and then, if a windfall does come your way, you'll be in even better shape financially.
Your 401(k) is money that belongs to you, but it's meant to be there for your retirement years, not to pay your electric bill or your kid's orthodontist bills when you're in your 40s. Even if you somehow find a way to pay the money back, you're still going to be out on the interest earnings while that money was out of the account on top of any early withdrawal penalties and taxes you may have to pay.
Money is one of the main things couples fight about, but if you're hiding spending from each other or keeping the credit card bill out of sight, then you could be headed for a financial disaster, if not divorce court.
You may already be in a financial free fall if you've got debt collectors hounding you.
If any of these warning signs rings true, it's time to face facts and put yourself on the path to financial freedom. These free courses on DailyFinance will guide you through everything from setting goals you can achieve to getting out of debt and planning for retirement.
If your money woes are too overwhelming, contact a nonprofit credit counselor (find one at the National Foundation for Credit Counseling) who can help you develop a strategy to prevent your financial breakdown.