Opinion - Personal Finance

Op-ed: Here are 5 questions to ask your financial advisor before the end of the year

Key Points
  • In addition to being a time for celebration, the year-end holidays are a good time to reevaluate your finances in partnership with your financial advisor.
  • Asking these five key questions about your money management and your advisor relationship could get you in financial shape for 2023 and beyond.
  • Top considerations are advisor strategy and services, tax planning opportunities, effectiveness of current investment approach and the possibility of tweaks and changes.
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The end of the year is a time to give thanks and celebrate the holidays with our families. It's also an opportunity to reevaluate the previous 12 months and ask your financial advisor some very productive questions.

1. What's your investment decision process?

We often judge the merits of a decision by the outcome, when the process could be more important. If you were to outperform the market by throwing darts, that would be driven more by luck than skill and would not be repeatable over an extended period.

Instead, you should be just as interested in what method your advisor uses to build a portfolio as you are in the result. Do they use macroeconomic indicators to select asset classes or review the balance sheets of companies in search of a certain metric?

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Many investors lost significant capital in both 2001 and 2008 because their advisor lacked a repeatable process to make investment decisions in different economic conditions.

2. Should we do anything to mitigate my tax exposure?

There are several options to reduce your taxes that you may have overlooked, including contributing to a retirement account, depreciating rental property or harvesting tax losses. Ask your advisor to review the holdings and transactions throughout the year to determine if it makes sense to capture capital gains and match it against a loss.

To the extent that you have an opportunity to increase deductions next year, now would be a good time to schedule some tax planning for 2023 when there's finally a lull in the action.

3. What am I paying for that I'm not utilizing?

Sometimes I must remind clients that I can help them with other areas of their life because they're so focused on the investments. A financial planner does more than invest your hard-earned money; we also provide estate, long-term care and education planning. Take advantage of all the services your advisor offers and maximize the relationship.

Sharon Epperson's money moves to make heading into 2023
Sharon Epperson's money moves to make heading into 2023

4. Am I on track to meet my goals?

When we experience a declining market, it's natural to review how much you've lost, but it may prove more worthwhile to know how it has impacted your ability to meet established goals. This will put the year into perspective, allow you to focus on a long-term vision and hopefully prevent a knee-jerk reaction that may undo years of hard work and planning.

5. Should we do anything different?

Your goals evolve over time, and that should change how an advisor manages your affairs. Did you have a life-changing event, find a new passion or experience a health event that requires a different approach?

There are times when clients choose to work longer in a lower-paying career that they find more rewarding. To the extent that you suffered losses in a retirement account, you'll want to find out how that impacts your ability to retire while you still have time to adjust.

Define what you want your life to look like and enlist your team of advisors to help you get there.

This is the perfect time to identify how your advisor intends to respond to an economy with a higher cost of capital, higher cost of living and historically low liquidity, all of which reduces the odds of an immediate market rebound.

Your financial advisor drives the bus, but it's still your bus. Make sure you tell them where you're trying to go.

— By Ivory Johnson, certified financial planner and founder of Delancey Wealth Management, LLC