Rick Kahler: Comparison shopping for financial advisor | Financial Awakenings

ou can spot comparison shoppers a few aisles away at any retail store. They are the ones carrying articles from Consumer Reports, badgering the salesperson with a million and one questions. People who manage money well are usually big fans of comparison shopping.

If comparison shopping is important before choosing a new refrigerator or lawn mower, it’s even more essential before choosing an investment advisor. Unfortunately, there is no easily available consumer’s report on advisors. Even more frustrating, those selling financial products often have incentives not to be forthcoming with the information that is crucial for comparing advisors.

One aspect of shopping for an investment advisor is knowing what questions to ask. One common mistake is to focus on investment returns. Shoppers may ask for the average recent returns of the advisor’s portfolios or may want to know whether the advisor’s returns beat the market averages.

There are several problems with focusing on returns. First, the numbers mean nothing without also knowing how much risk the advisor took to produce the return. It’s like someone on a diet focusing only on fat grams without regard to total calories. Consuming ten soft drinks in a day may give you zero fat grams, but you could easily exceed your daily calorie limit before eating one bit of food.

read the complete article here: Rick Kahler: Comparison shopping for financial advisor | Financial Awakenings.

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