How to Measure the Effectiveness of Your Financial Advisor


NEW YORK (MainStreet) — How do you measure the effectiveness of your financial advisor's investment recommendations? By beating the S&P 500 index? Outperforming an allocation model suited to your risk appetite? Or, is it more complicated than that?

Most financial advisors (87%) believe success should be measured by the achievement of "desired personal or purpose-driven investing outcomes" rather than a standard market benchmark, according to a survey by Brinker Capital. In light of that goal, more than three-quarters (78%) of the advisors surveyed said they would not be recommending any changes to their clients' retirement investment plans.

This "staying the course" strategy reflects an emerging advisor confidence in the economy, according to the survey.

"It's been a long time coming, but financial advisors are finally feeling good about the economy and their clients' financial diagnosis for the future," says Brinker Capital Vice Chairman, John Coyne. "In fact, our [survey] showed that 49% of financial intermediaries painted a rosy picture of America's economic landscape, versus 26% in the same period a year ago."

Financial advisors, while optimistic, are most concerned with Washington. When asked to name their top worry, 61% of respondents said "ineffective federal governance by both the administration and Congress." That was far and away a greater matter of concern than "budget deficits" (20%) or "high unemployment" at 12%.

"What's particularly remarkable about this rise in confidence is that advisors were able to see beyond the then-looming government shutdown, and the country's tarnished reputation on the international stage, to focus on the longer-term prospects for America's economic future," adds Coyne. "It will be interesting to see how this level of sentiment holds up in the final quarter of 2013."

However, nearly two-thirds (64%) of advisors said the country's reputation is worse now than it was in the third quarter of 2012.

When meeting with new clients, 78% of advisors surveyed said "market skepticism" was the biggest factor to overcome when recommending an investment plan. Advisors also cited a "lack of investing knowledge" (40%) was also a new client roadblock. Fully 29% of financial consultants also say they get pushback from new clients not wanting to pay fees for advice they can get for free from the Internet or other sources.

Going forward, advisors are looking to recommend more alternative investments (57%) to their clients. Equities (54%) and international (46%) holdings are also gaining favor.

But 63% of respondents said they will allocate less to fixed income compared to last year. And cash (28%) and emerging markets (14%) will also likely to be trimmed in client portfolios.

--Written by Hal M. Bundrick for MainStreet

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