Rules for Advisors’ Clients

Finding a good advisor is only half of a fruitful advisor-client relationship. Being a good client can help you increase your wealth because some advisors do just a little bit more for great clients who are easy to work with.

Here are a few guidelines for doing your part to build a good relationship with your advisor.

Don’t expect investing magic. There is no such thing as risk-free return. No product or honest advisor can offer you a guaranteed profit. Anyone who says they can is either delusional or simply lying to get your business. Every advisor out there has had big gains and losses. None are perfect. And, if you find someone who has a flawless record – beware – that advisor’s winning streak can shortly come to an end.

Past performance is no guarantee of future results. Heed the disclaimer that is on every piece of financial literature ever written. And this doesn’t even go far enough. Past performance has absolutely nothing to do with future performance.  Last year’s winner often sees a reversal of fortune, right after it attracts more money and new investors. You can’t step into the same river twice.

Don’t judge your advisor relative to a general index. The performance of some benchmark index is irrelevant. Not that performance is unimportant, but no one knows what the future holds. Your plan is way more important than performance.  And performance expectation should somehow be tied to your plan.

Focus on the advisor’s process and philosophy. Ask your advisor how she expects your portfolio to perform under different conditions. Then measure success based on those plan-established expectations. This plan-centered analysis is a better predictor of how an advisor might perform over the life of the plan.

Trust your advisor completely. For clients who decide to work with an advisor, the single most important factor determining their long-term financial success is trust. Your advisor will sometimes ask you to do things that are not entirely comfortable and it is important that you can hear her.  You may need to save more than you think you can and occasionally stick with an under-performing portfolio. Clients need to be patient with their plan and their advisor, and remember to always keep fear and greed in check.

This relationship doesn’t just hinge on the education, experience or ethics of the advisor, though of course, these support trust. You also need to develop the capacity to trust your advisor when she challenges you to stay the course when doing so might be emotionally difficult, as in during bubbles and crises.

When asset bubbles inflate, as they did in the dot-com boom, a good advisor guides you against putting all your money in risky stocks (which means you may underperform for a time). In times of panic, such as during the recent financial crisis, you have to trust that your advisor can get you through the storm. Nobody can predict or control the markets. Your advisor can’t tell you exactly when your portfolio will recover. It takes some faith, but you need to resist the urge to sell at the bottom.

Understand the difference between currency and money. Currency refers to the bills and coins you have in your pocket or purse. Money is the purchasing power that the currency gives you. The numbers on the currency stay the same but the ability to trade those bills and coins for goods declines over time because of inflation. Sometimes you have to risk currency to protect money.

Know the importance of planning. A portfolio without a plan is a non-starter. The only way that an advisor can help you is if you make and follow a financial plan. This can be as simple as a retirement income analysis, but it should include an understanding of cash-flow needs (amounts and timing) and potential risks.

Your plan balances the tradeoffs of spending versus saving and risk versus return. You should monitor the plan’s assumptions, testing and adjusting them throughout the life of the plan. Short-term market losses are not necessarily a reason to change the plan, though major deviations from the plan’s expectations may be.

Finally, say ‘thank you.’  Your advisor is human and not every one of her clients follows these rules. The clients who really appreciate our work are the ones we enjoy working with the most.  There is no way this can hurt you.

Following these guidelines should make your relationship with your advisor easier, and hopefully lead to increased investment success and wealth in the long run.

Jonathan K. DeYoe, AIF and CPWA, is the CEO of DeYoe Wealth Management in Berkeley, Calif.  Follow Jonathan on Twitter at @DeYoeWealth.

Jonathan DeYoe, California Insurance License #0C21749, is a registered principal with and securities and advisory services offered through LPL Financial, a Registered Investment Advisor - Member FINRA/SIPC.

The opinions voiced in this material do not necessarily reflect the views of LPL Financial and are for general information only and are not intended to provide specific advice or recommendations to any individual. For your individual investing needs, please see your investment professional regarding retirement planning.


Follow AdviceIQ on Twitter at @adviceiq.


AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty. For instance, the rankings this week measure the number of clients whose income is between $250,000 and $500,000 with that advisor. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.