Lido Insights

7 July 2022

Top Questions to Ask Your Advisor

By Greg Kushner, CPA*, Senior Managing Director and Chairman,

As a wealth advisor working with high-net-worth individuals and families for over 25 years, I am sometimes amazed to see clients who don’t ask the right questions during a regular portfolio review meeting. I let my clients know there are questions they should be asking me. While being their trusted advisor is a huge piece of my practice, I still want my clients to know what we are doing and why, along with showing them what has been working and what has been disappointing and why. To my full disclosure, including the level of risk in the individual’s portfolio is incredibly important and should be one of the main attributes discussed. Of course, it is also important that the investor doesn’t change your risk profile based on current market conditions. When the market had been roaring ahead at the end of 2021, many investors wanted to get much more aggressive while during today’s very volatile and negative market conditions, investors want to get more conservative. The question really should be what has changed in your own situation to make your risk profile change? Generally nothing has materially changed, it is the investor’s human emotions of greed and fear taking over, rather than rational thought.

As an advisor, it is my job to help keep these emotions in check and to invest based on the client’s long-term objectives and not their short-term feelings about the market. If the portfolio has been designed to be very diversified including truly non-correlated assets and hedging strategies which should help the portfolio withstand major drawdowns during tough markets like today and yet perform well during positive market periods, hopefully clients’ will be better able to not let these emotions control.

Asking fact-based questions should help in dealing with investor emotions. Depending on how often you meet with your advisor, you should have some basic questions in mind. For example, assuming you meet with your advisor on a quarterly basis, you should be asking him or her questions such as:

  • What changes in the portfolio have you made during the past quarter?
  • How did these changes impact the portfolio, e.g., increase the beta (risk) of the portfolio or decrease? Did the portfolio get more equity focused?
  • If not automatically provided, ask how your portfolio compared to some of the major indices like the S&P 500, NASDAQ, The Barclays Aggregate Bond Index, etc.?
  • Your advisor should be able to provide a detailed report reflecting the performance of each of the major asset classes and the specific performance of each underlying position in your portfolio. While not essential to review every investment, the report should be able to provide you with the “feel” of the strategies and what has been working and what has not been performing as expected.
  • Does your advisor provide a “custom” benchmark that more closely reflects your actual portfolio composition? Did your portfolio underperform or outperform this benchmark and why? Also be on the lookout if your advisor frequently changes this benchmark to find a benchmark that makes them look better.
  • Ask your manager his or her view on the relative riskiness of the portfolio and does it line up with your risk profile that you provided to your advisor when you began your relationship (or if it had been updated since).
  • Can your advisor provide you with statistical backup of the risk in your portfolio, and is your portfolio generating positive alpha meaning are you getting paid for the risk you are taking or getting paid more than you should have given the risk of your specific portfolio?
  • What is your advisor’s view of the investment landscape over the next 3-6 months and beyond?
  • How much in the way of realized taxable gains have been generated year-to-date and will the advisor be sure to do any tax loss harvesting as we move into the later part of the year? Are there any major changes in the taxability of the portfolio that my CPA should incorporate into my tax planning?
  • What major themes or actions does the advisor feel warranted given the current market conditions and how do those actions impact your specific portfolio?
  • Your advisor should be asking you about any major changes in your life or investment objectives and or if there are any issues that the advisor should know about, this would be important information to share with your advisor. A major gain on the sale of a piece of real estate for a large gain, a business loss or an inheritance are all examples of changes your advisors should be informed of.

While the above is not a complete list, is should spark meaningful conversation between the you and your advisor to help streamline areas of concern.

Written By

Greg Kushner, CPA<sup>*</sup>-Senior Managing Director and Chairman
Greg Kushner, CPA*
Senior Managing Director and Chairman

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