How to monitor the activities of your Financial Advisor

A financial advisor is someone who works closely with you to help you organize your finances. They help you achieve your financial goals. They also help you save time, efforts and energy while managing your finances. They not only know what you own and owe but are also aware of your financial strengths and weaknesses. Naturally, you trust them, However, to bring out the best in your financial advisor, it is important to monitor their activities. Here’s how you can do it:

8 ways to monitor the activities of your Financial Advisor

1. Be updated about your finances
2. Be in regular touch with your financial advisor
3. Carry out a yearly appraisal of their work
4. Ensure that they are consistent with their work
5. Ensure they communicate things to you effectively
6. Check whether they are adhering to your risk tolerance levels
7. Be aware of their client attrition rate
8. Familiarise yourself with their business model

1. Be updated about your finances

It is important for you to be well-informed about your finances. After all, it concerns your hard-earned money. And when you have money, it is not uncommon to have a bank account. You must be aware of all the necessary details related to your bank, namely your bank account number, your account balance, the types of loans it offers, how you would contact them in case of an emergency, etc. You must also be updated about your investments, debt, insurance plans and the like. A fair understanding of your finances will help you stay attentive. 

2. Be in regular touch with your financial advisor

It is always a great idea to stay in touch with your financial advisor and remain updated about their work. Contact them regularly over telephone or email to know about their latest activities and how your finances are being managed. Even if you have hired a competent financial advisor, you still must get involved in regular discussions with them to know if things are on track. 

At times, financial advisors work for both, companies as well as individual clients. In such circumstances, a financial advisor may put the interest of the company above their individual clients. To avoid such a situation, you can ask your financial advisor to sign a NAPFA Fiduciary Oath when you hire them. The oath binds them to disclose every conflict of interest that would impact their independence or impartiality.

3. Carry out a yearly appraisal of their work

As is the case with other professionals, it is advisable to carry out a background check of your financial advisor before hiring them. And, even though you have hired someone with sound records, it is always advisable to monitor their activities. While financial advisors always try to give their best, even then, sometimes, they might be subjected to a fine or a penalty. Keep a track of these things by carrying out their annual appraisal. This will help you assess the performance of your financial advisor on a wider scale. It will also help you find out if they have been able to live up to their commitments in the past. Based on these appraisals, you can decide if you want to continue working with them.

4. Ensure that they are consistent with their work

Famous wrestler and actor, Dwayne Johnson, popularly known as The Rock, once said, “Success isn’t always about greatness. It’s about consistency”. Well, this is applicable even while you monitor your financial advisor. You need to evaluate whether they are able to fulfill their tasks with consistency. This includes their commitment to abide by the deadlines, ensuring that they always communicate things to you well in time, etc. For instance, if your financial advisor promised to explain to you your quarterly financial statement, or let’s say, they promised to hold quarterly review meetings, you must check if they are doing it on time. Your financial advisor’s consistency will help you place your trust on them and lay the foundation of a long-term relationship.

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5. Ensure they communicate things to you effectively

It is imperative that your financial advisor keeps you posted about everything. You must ensure that they do not withhold information from you. After all, such information educates you and helps you take informed decisions. Moreover, effective communication will also establish transparency in the entire engagement. For example, irrespective of whether your investment is doing well or not, they must clearly apprise you about its performance.

6. Check whether they are adhering to your risk tolerance levels

While hiring your financial advisor you must inform them about your risk tolerance levels. Following that, you should check whether or not their recommendations are in line with your risk appetite. Inform them immediately if you think that a certain decision exceeds your defined limits of risk. If, however, they still think you must take that risk, then ensure you clearly understand the reasons behind it.

7. Be aware of their client attrition rate

If your financial advisor begins to lose an unusually large number of clients regularly, then you must look into the matter. The reason could be any, but it is always advisable to find about them so that you can take necessary actions.

8. Familiarise yourself with their business model

Ensure you have enough knowledge about how your advisor’s business functions. An important part of understanding their business model is understanding how they charge for their services. You should ensure that they do not withhold any information and are open about their fee structure and terms. This will enable you to understand what you are paying for and what to expect in return. 

To sum it up

Though financial advisors are careful about your money, they can commit errors. After all they are humans. Therefore, it is in your own best interest that you monitor their work and ensure everything is on track.

Need someone to help you with your finances? You can consider approaching financial advisors. They have the necessary skills to ensure that your finances are well taken care of.