Both stockbrokers and financial advisors have a responsibility to act in a prudent manner with regard to their clients' accounts; however, clients have responsibilities too. In order for your relationship with your financial representative to flourish and your investment accounts to prosper, you will have to add your two cents and keep your documents up to date.
In this article we'll show you five activities that will help you help yourself - and better your relationship with your rep.
1. Keep Up-To-Date Records
Ideally, clients should keep monthly and quarterly account statements and transaction confirmations on file indefinitely. However, assuming you, the client, don't own a storage facility or want to fill up your attic with vast piles of financial paperwork, you should at least retain all relevant statements for no less than five - and preferably for seven to 10 - years.
Holding your account information for a longer time period allows you to better track your portfolio's performance historically. In fact, it would be wise for investors to periodically chart their investment progress against returns of other stocks, bonds and/or funds in similar sectors. They should also compare portfolio performance against well-known benchmarks including the Dow Jones Industrial Average and the S&P 500 to see determine whether a financial advisor is at least matching the returns generated by the broader market over time. (Find out more about benchmarking, in Is Your Broker Acting In Your Best Interest? and Evaluating Your Broker.)
Most accountants will also tell you that records should be kept for this length of time in case the state and/or the IRS have any questions about past tax returns.
There are of course other reasons (such as a pending lawsuit or some other financial or legal matter) why an individual would want to retain their records for an even longer period of time. To that end it would be wise to check with a lawyer, financial advisor and/or tax professional that is aware of your individual circumstances before discarding any important legal or financial documents.
2. Take Detailed Notes
When a client talks to his or her advisor on the phone, via email, or in person he or she should be taking notes on any requests, new information or topics needing clarification. Note keeping also allows the client to have a hard copy of the experience, and later provides an opportunity to internalize what the broker/advisor said during the conversation. Because the average person is not an investment professional, he or she may need a little longer to understand and assimilate financial information. In addition, if there is ever a conflict between the broker and the client, these notes may help serve as evidence of what transpired during the conversation. In fact, FINRA panels routinely review personal notes and other communications as part of the arbitration process. (To learn more about the arbitration process, see Broker Gone Bad? What To Do If You Have A Complaint and When A Dispute With Your Broker Calls For Arbitration.)
3. Track Commissions
Commissions can take a big bite out of a client's investment returns, and can be particularly painful during down years in the stock market. Clients should make certain that the fees being charged on their current trades are what was agreed upon either at the outset of establishing the relationship with a broker or before the actual trade took place. Calculations errors are common and frequent. (To keep reading about commissions, see Paying Your Investment Advisor - Fees Or Commissions?)
4. Ponder and Communicate Life Changes
Investing is a fluid activity. An individual's goals for his or her portfolio (and investment style) will change over time as a result of marriage, buying a house, saving for a child's college education and the approach of retirement. As a result, a client should always keep his or her advisor in the loop should any changes in lifestyle, goals, investment horizon, or risk aversion occur. (Find out more about life changes in Life Planning - More Than Just Money and The Seasons Of An Investor's Life.)
Communicating these changes will enable the registered representative to make the appropriate suggestions as to new investments to undertake and perhaps even alterations to the client's portfolio, in addition to helping the client formulate and implement new investment strategies going forward.
5. Educate Yourself
All clients should learn as much as possible about the investments they own as well as about investing in general. This will help them better converse with their broker as well as possibly assist them in formulating new ideas that they can share with their advisor.
Further, by being a student of the market, a client can learn to understand cyclical trends in specific stocks and/or sectors and be better able to make decisions when contacted by an advisor.
The most successful advisors have proactive clients that benchmark their performance and provide viable ideas. Investing is a team sport in which the advisor and the client must work together in order to succeed. As such, investors must take an active role in their relationships with investment professionals.