You can protect your financial interests if you follow this old saying: "Get it in writing".
Low quality advisors avoid written communications for three reasons:
- Sales pitches maximize the impact of their personalities and sales skills
- They can use deceptive sales tactics with relative impunity
- You have no written record of what they said to you
High quality advisors believe investors deserve complete transparency. They have nothing to hide. Low quality advisors resist transparency because they have a lot to hide. The highest form of transparency is written communications.
There are four reasons why you should demand written communications:
- It is your money - make it a condition of investing your assets
- You reduce your risk of miscommunication
- You have a written record if there is a future dispute
- You increase your advisor's accountability for performance, risk, and expense
Your advisor should have a clear understanding of your performance expectation. Do you expect 10% per year or 10% per year after all expenses are deducted? The difference in your expectation could be 2% or more. What do you expect in down markets when investment returns are negative How long do you give your advisor to fix bad performance?
Your advisor should also have a clear understanding of your tolerance for risk. And, your tolerance must be consistent with your performance expectations. For example, you cannot expect high returns for low risk. This relationship does not exist - it is a sales scam.
There are three primary types of expenses that are deducted from your account: Fees, commissions, and transaction charges. Fees are the only concrete numbers that are provided by most advisors. You want every penny of expense disclosed to you before you sign any documents.
Advisors view client contact as an expense, in particular if they have to travel to attend a meeting with you. So, it is important to communicate your contact requirements with your advisor. Contact can be face-to-face, telephone, or video conferencing. Meetings can be at your location, the advisor's location, or both.
What reports do you expect to receive? Monthly brokerage statements? Quarterly performance reports? Monthly market environment reports? Communicate your report requirements to your advisor.
Written communications protect your financial interests. Do not select an advisor who will not document the information you need to make the right decision.