Year-End Strategies: Evaluating Your Advisor

With the approaching New Year, now is the perfect time for a status check on your financial advisor. You should examine your tax situation, your budget, your investment performance, and your current level of diversification.

We write often about the pros and cons of working with an advisor. Among the significant pros is not having to spend a lot of time poring over financial statements and not having to know the nitty-gritty details of all of your investments. This can be a particular bonus for busy dentists.

But one of the cons is that you still need to check under the hood now and again. The old stratagem of “trust, but verify” should be your mantra when it comes to working with anyone regarding your finances. Even if you’ve worked successfully with the same individual or company over the years, you’ll want to do a review, and the end of the year is a great time to do so. What should you look at? In short: your tax situation, your budget, your investment performance, and your current level of diversification. Let’s take a closer look.

2016 Performance and 2017 Goals

Investing for retirement is a marathon, not a sprint, right? Theoretically, then, your financial goals shouldn’t change dramatically from year to year. In reality, though, they often do. Maybe a big leap in practice income has changed your financial standing. Maybe a huge unexpected health issue has come up. Maybe there was a change in junior’s plans that now involve a sudden need for swift accruement of a college savings account.

This year’s performance and next year’s goals may seem like two very different things, but they’re linked. Investment performance that exceeds--or conversely, fails to meet--the goals established don’t necessarily require annual adjustments. But you and your advisor should always be aware of the recent performance data and vigilant about any possible adjustments that need to be made.

Market fluctuations are a natural and unavoidable aspect of investing, so a small dip in some investments is not necessarily cause for alarm. But sometimes our investments drift slowly away from our financial goals over time, in increments nearly too small to notice. Take some time with your advisor to make sure you’re still on track.

Yearly Commissions and Fees

In April 2017, the first provisions of the Department of Labor’s Conflict of Interest rule will take effect. In short, this may change how your financial advisor works with you, the disclosures he or she is required to make, and the need for your advisor to work in a “fiduciary” capacity as opposed to simply recommending investments that are “suitable.” Make sure you understand in advance how the relationship will change and what changes complying with the new regulation might mean to the commissions and fees your advisor charges. Look at 2016 transaction fees to make sure what you’re paying is appropriate for the services delivered.

Overall Economic Climate

Any advisor worth their salt will have a good grasp of current financial indicators and how those may play out in the year to come. This is particularly important in the uncertain economic times that may result from the election of Donald Trump. It may not necessarily mean you’ll need to make seismic shifts in your investment strategy. But it may mean making some changes to your investment mix.

The end of the year can be hectic, but a good, attentive advisor will make the time to ensure that the partnership is proceeding on solid ground.