Questions to Ask a Financial Advisor

We think the best chances of success for an individual investor are tied to their relationship with their advisor. Of course some may opt to do it themselves. In our experience, this takes tremendous discipline. Investors can save themselves money by taking this route, no doubt, but the majority of investors choose to work with someone. Do-it-yourselfers run some very simple but real risks, namely not identifying those biases we all share that can lead to costly mistakes. A good advisor educates investors about these biases to help them see decisions more clearly. A piece on said biases is forthcoming.

As with all professions, some advisors are better than others. How do you find the right one for you? Interestingly, many investors don’t offer up referrals of their advisor to their friends willingly. Of course there are exceptions, but many choose to keep this relationship to themselves so asking friends and family for a name is a start, but only a start. You must first decide what is important to you. Not all advisors work in the same way.

These five questions are a good place to start

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Well, well, well, Wells Fargo

What’s in a name? In the case of big U.S. corporations, often times it’s a rich history, culture, values, brand loyalty, etc. So what have the executives at Wells Fargo been smoking these past few years? Fake account scandals, improper trading of retail investments, unneeded auto insurance, and apparently more to come. They’ve paid enormous fines so far in just a couple of years, including $1 billion this April.

The intent of this article isn’t to cast aspersions on Wells Fargo, they are just the whipping boy of the moment, and deservedly so. Financial scandals are as old as time. A few years ago, we wrote about J.P. Morgan, and Citigroup and Merrill Lynch before that. Wells is just the latest example of what’s wrong in financial services for Main Street investors, retail investors. Main Street has never been well served by the finance industry. That doesn’t mean that, 1) there aren’t hard working ethical people within these big firms and, 2) Wall Street hasn’t served retail investors well in certain respects.

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The Darkest of Days and New Beginnings

This post was written by guest columnist Harvey Siegel, CPA. Harvey is a senior financial advisor based out of Apella Capital’s Lenox, MA office.

On Monday, October 19, 1987, the Dow Jones Industrial Average (DJIA) closed down 508 points, or 22.6%. “Black Monday,” as it was called, remains the largest one-day percentage decline in the history of the DJIA. Your writer files it as a “where were you when it happened?” moment. Less than a month later, the founding principals of the predecessor to and currently senior financial advisors of Apella Capital, Lenox, MA started their new business. 

In the last thirty years notwithstanding asset bubbles, three stock market crashes and as many recessions, political turmoil, wars, natural disasters, Eurozone crises, the rise of terrorism and the worst financial meltdown and economic downturn since you know when, the S&P 500 had a total return of over 2,000%.

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Financial Planning (yawn)

Financial Planning might be one of the more boring phrases people hear. For some, the thought of it is downright terrifying. And with good reason; thinking about retirement is scary and trying to organize your household budget is a daunting task for many. Some people are fortunate and born organized. But for the rest of us, we’d rather clean out the garage. As with many things now driven by software, financial planning has come a long way. In the ‘80’s and ‘90’s, planning was done with what we’d now call a spreadsheet. It was all manual and it was largely out of date within weeks of its completion. Most planners worked on commission and for many, the plan was the vehicle used to sell expensive (and often poorly performing) products. Well, planning has come a long way. 

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The Other Side of Irrationality

Irrational is too strong a word but it’s one we read about in (behavioral) finance quite a bit. Investors that panic sell in bad times or that expect unsustainable high returns forever in good times are not irrational. In fact, we can see how they come to their decisions. There’s a difference between irrational and uninformed.

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Never Mind The Noise

Investors are all too often distracted by noise in markets. "Noise" is actually an statistical term to describe "unexplained variability in a data sample". Yet Wall Street gurus are ready and willing to offer explanations ad nauseam. Our wise colleague Harvey Seigel, offers his take... 

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A Higher Calling

Are you associated with a not-for-profit organization? Maybe you volunteer some of your time for a cause about which you feel strongly. If you don’t do something along these lines currently, you may very well find yourself in this position in the future. Save this column for that time as it can help you understand the great responsibility that comes with stewardship.

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A Column for a Rainy Day

In 1997, my colleague Harvey Siegel in our Lenox, MA office, wrote about market volatility. He cited the fact that from 1990 through 1997 the US stock market (S&P 500 index) gained 300% and that investors should not expect a move like this to continue unabated. After all, market volatility is the price we pay to get the market return. Due to market gyrations last summer, Harvey and his partners, Ed Richter and Barry Wesson, revisited that column. Considering the past few week's market moves, I thought it deserved yet another look and it's re-posted here:

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The "Smart Money"

Harvard has begun exiting a large investment made six years ago in natural resources. Much of these investments were made outside the U.S. as in Central American teak forests, Australian cotton farms, a eucalyptus plantation in Uruguay, and timberland in Romania. The endowment thought they could take advantage of growing demand in scarce resources around the globe, particularly in emerging markets according to former head of Harvard’s endowment, Jane Mendillo, in a 2012 Bloomberg interview. In the past year the endowment has written down the value of its global natural resources portfolio by $1.1 billion. Over the past 10 years the fund has returned 4.4% on average. Contrast those returns with a simple buy and hold 60% stock and 40% bond index portfolio (rebalanced annually) that returned about 6.5% over the same time period.

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Points and Percentages

A quick note for investors concerned about recent volatility in the stock market. That’s what a blog is good for (maybe), right? On January 26, the Dow Jones Industrial Average reached 26,616.71. The S&P 500 index reached 2,872.87 that same day. On February 5th, they closed at 24,345.75 and 2,648.94 respectively. On February 6th as I write this, the averages are back up. That’s around an 8% drop in short order.

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Turmoil

Turmoil. An investor asked me if I was concerned about the “turmoil in Washington” and its effect on markets. I asked him, “When hasn’t there been turmoil in Washington?” Or in the Middle East…North Korea…Russia…Venezuela…you get the picture.

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Death and Taxes

From time to time this blog will invite guest columnists to weigh in. Today Harvey Siegel, Senior Financial Advisor and colleaugue at Apella Capital in Lenox, MA shares his thoughts.

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An Exercise in Humility...and a Promise

As 2017 comes to an end, so now begins the painful process of self-examination amongst Wall Street’s finest prognosticators. I entered this industry as a management trainee with Paine Webber in 1983 (ugh). Since that time I have noticed that Wall Street engages in a tortuous ritual where market experts make predictions on how various markets will perform in the coming year. I don’t recall when the financial print media actually began tracking and holding them accountable but it took far too long. And it doesn’t appear to have spread to the financial news shows on TV – the same tired hacks keep shooting their mouths off while the networks pay scant attention to their track records. I mean, what’s the media for?

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Scams, Schemes, and Rip-offs

I don’t know why I’m still a bit surprised every time I read about an advisor stealing from clients. I suppose it’s because I’m “in the business” and I can’t fathom anyone falling for the lines these advisors use. I forget that a smooth talking advisor can make just about any “investment opportunity” sound great and coupled with the abuse of trust they’ve established, the client is often beyond saving.

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Due Diligence

Due diligence. We hear this term all the time in our industry and I’m sure other industries use it as well. Here in our headquarters that houses our two firms, Symmetry Partners and Apella Capital, we host due diligence visits frequently. Visitors are independent financial advisors learning about our offering or our own advisors bringing their clients and prospective clients to learn more about the firm(s). We schedule a half or full day of presentations and meetings with department heads and key personnel. The goal is to demonstrate our capabilities in investment management, financial planning, and associated services we offer.

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How To Be A Successful Investor

I’ve spent the better part of 23 years teaching people how to be better investors. I do it through educating and coaching. In hindsight it seems easy, common sense really. But when I speak to investors, I realize all over again how badly our educational system failed them. Not in a classic liberal arts or the sciences way but in how to be a financially literate functioning adult. I think the world of teachers. I have a sister who teaches and my father was a teacher before getting into finance. It comes quite naturally to me. I enjoy being in front of an audience and sharing what I’ve learned with them. If there’s one thing I do well, it’s communicate often complex topics in understandable ways. But our educational system fails us in preparing young adults to handle the money they are about to start earning as they embark on a career or trade.

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The Timeline of Terrible Things

What a great title for a marketing piece. I’m not sure who came up with the name, but it’s direct and to-the-point, is it not? It’s a simple concept really: create a timeline over the past few decades or so and point out those events that frighten people along the way. For example, WWII, the Cuban missile crisis, inflation in the ‘70’s, the crash of ’87, the Asian contagion, the crash of 2000-2002, the ’08 crash and so on. These are but a few examples of events that caused investors concern, and who can blame them? This particular timeline isn’t a straight line however. These events are superimposed on the Dow Jones Industrial Average or the S&P 500 to illustrate one message: that despite the constant presence of reasons NOT to invest, markets have gone in one direction over time, up. Why is that?

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Computers, Algorithms, Robots!

Self-driving cars, automated assembly lines, roombas(!), robo-advisors…where will it all end? I actually saw a national news story this week about robotic pets. Robot dogs to be precise. Talk about a responsibility-free relationship! (Don’t you wish everyone had an on/off switch?)

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Performance

I have discussions with advisors all the time about portfolio performance – more specifically about recent portfolio performance. I almost never have conversations (longer than five minutes) with clients about recent portfolio performance.

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Common Sense

I've spent a lot of time in the business of managing portfolios, making investments, trading securities, researching strategies, etc...over 34 years now. And it can be made into the most confusing, esoteric, and complex process imaginable. For nearly a decade, I was sucked into this world of esoterica. I was impressed by how complicated an investment strategy could be. Then I had a conversation with a man named Paul Sarnoff. He was a very highly respected commodities trader in the '70's and '80's. I was a floor trader for a major brokerage firm at the time - I was one of those people that stood in a trading pit and yelled at the top of my lungs trading gold and copper for the firm's brokers and clients. Paul ran commodities funds and he would frequently call us on the floor to get a feel for how the trading day was going. On one particular occasion, he sighed and lamented the tough market he was in at the time. He had been doing poorly (as all traders do from time to time) and he was near the end of his career I think. In a moment of candor, he said to me that it was all a crap shoot...and that he didn't understand "the market" anymore. By that, he was referring to the gold market. 

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