For those investors working with financial professionals, it is important to know what to expect from advisers before stock market events occur. The last thing investors need during market downturns is additional frustration from their adviser relationships. Are you and your adviser “on the same page”? To find out, ask questions like these:

 

 

“What is your investment approach?” You actually need the adviser’s answer to this question before delving into what they may do in reaction to the market. Before hiring any adviser (or even if you currently have one), it is critical for you to understand the adviser’s investment approach:

• 1. What are the types of investments that will be purchased?
• 2. How long will they be held?
• 3. How often will investments be reviewed?
• 4. How often is the overall portfolio analyzed?
• 5. How often are trades placed?
• 6. What will the trades cost? and
• 7. How does the adviser get paid?

 

After you have these answers, then you can "zero in" on how the adviser may respond. Different advisers may take different approaches during different market conditions. Some advisers take a “buy and hold” approach while some are active traders or even attempt to “time” the market. Which kind of adviser do you have? How do you know? Ask! Describe scenarios to the adviser. If you have specific concerns such as market corrections, inflation, interest rate increases, or tax management, ask the adviser how they would respond to each.

 

“What will you do if the stock market falls significantly?” If this is one of your specific concerns, ask! The answer may surprise you. The adviser may do more or less than you expect in the face of uncertainty or big swings in the market. For example, my investment firm’s approach is the same whether the stock market goes up 10% or down 10%. Our tasks don’t vary: we perform an ongoing review of each client’s investment holdings; we check the funds’ performance against its peers; and we do a full portfolio analysis each month to maintain diversification.

 

With a clearer understanding of what advisers will do in various circumstances, individual investors can better manage the stress and anxiety caused by gyrating markets – and ultimately, that can help make them better investors.