Determining quality can be easy or difficult, depending on what is being evaluated. After you finish a restaurant meal or have had a new watch, sweater or television set for a while, you can determine if you have experienced good quality. But how do you evaluate the quality of financial advice or an investment portfolio?
Defining the quality of financial advice can be more challenging, as it is not a tangible item that you can touch, feel and see. The time perspective is also very different, as financial advice and its benefits occur over a long period of time.
Financial advice can be measured in various ways. The quality of finance advice can be measured from a wide angle lens or perspective. Is the advice that you are receiving moving you towards your life and financial goals? Are the conversations that you are having with your financial advisor addressing your needs and concerns?
Is your advisor understanding you? Is your advisor assisting with issues beyond just investments, to provide you peace of mind with insurance, estate planning or charitable giving matters (depending on your personal issues)?
Do you feel that you and your advisor have developed a trusting relationship, in which your advisor is acting solely with your best interest in mind? Is your advisor making recommendations based on what is best for you, and not providing advice that is influenced by any commissions or fees that he or she may receive? (Note: we are not compensated by any commissions or fees, other than our advisory fee).
In terms of implementing your financial plan, you can then evaluate the quality of the advisor’s recommendations by using a different perspective, which is more quantifiable. You can measure and track the performance of the investment recommendations, against appropriate benchmarks. This should be done over a long period of time, which would be years, not months or quarters.
In evaluating our investment recommendations, we monitor how the mutual funds that we recommend perform against their respective benchmarks over various time periods. As independent advisors, we recommend many DFA mutual funds (Dimensional Fund Advisors). We don’t recommend them because we are compensated by DFA; we are not. We do not recommend them because DFA has grown to become the 7th largest mutual fund company in the US. Our recommendations are based on adherence to a disciplined investment philosophy. The funds deliver what they promise to do, which is to consistently perform well in each asset class that it is invested in, over a long period of time.
To measure quality, you will need to use different perspectives to evaluate different things. In measuring an investment advisor relationship, there are many components. We strive to continuously learn, to improve, to understand our clients and to provide them with the best investment and financial planning recommendations that are appropriate for their personal needs.
Note: Thanks to Jason Womack, who’s excellent Leadership Retreat I attended last weekend. Jason provided the context to think about quality and the different perspectives of measuring quality.