What to do when your advisor-managed portfolio is falling behind

Written by
Peter Dunn

Dear Pete,

I've recently discovered that my investment portfolio, which is managed by my financial advisor, has consistently returned about 5 percent less than the market (S&P 500). Is that enough reason to leave him behind and either look for another one or start doing it myself?


Hey Michael,

I'd assume pretty much every reader of your email would want to fire your advisor, but I'm not quite so quick to judge. There are two ways in which you can measure the success of your advisor relationship.

  1. The state of your net worth
  1. A risk-adjusted comparison with the market indexes

Your net worth is important. Hopefully you've been tracking your net worth's progress over the course of your relationship with your advisor. But it's not all on him. The best way to increase your net worth is to take advantage of your best asset, your income. How much you use your income to impact your net worth is on you, though a really good advisor will push you to make the most of your income. They will help you assign tasks to your income and encourage you to save and invest more than you currently are. If your net worth is increasing each year because your advisor is driving you to progressively use your income more wisely, they are a keeper.

The market can't be controlled, you know this. You can't judge your advisor on how the market performs, but there has to be another metric for measuring success in this area. There is, it's a risk-adjusted comparison with the market indexes. This starts with you. Are you being honest with yourself about your risk tolerance? A lot of people want the returns, but not the risks associated with them. It's possible you are getting the returns your risk assessment, which you likely took when you began your relationship with your advisor, indicated you were willing to take the risk for. Be honest with yourself, are you willing to take the risks necessary for the returns you want?

Once you've worked through these two things you should have a pretty clear answer if your advisor is getting the axe or if you simply need to adjust a few things to make the relationship work.

Read my Indy Star column from this week here.

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