I’ve had a financial advisor, who is a certified financial planner (CFP), since December of last year. I really find his advice super valuable, but I can’t seem to get over the fact that he sold all of my Nvidia stock when he took over as my CFP. I had bought $20,000 worth of Nvidia when it was only $130 a share, which would have left me with well over a $50,000 profit. He told me that I should really not get too upset over it because even though it took off in value, it could have also gone the other way. Do you have any suggestions on how to get over this? I still feel very frustrated even though I really like him as a CFP. I’m not sure what to do. How long should I give a CFP to show his/her value?”
– Kerrie
Your frustrations are understandable and you are certainly not alone. Investors – whether individuals or institutions – and their financial advisors differ in opinion on buy and sell decisions every day.
While it can be difficult to get past these feelings of frustration, there are several important things to consider. A full evaluation of these items could help you move forward with a reinvigorated sense of trust and a strengthened partnership with your advisor.
Do you need help finding a financial advisor? SmartAsset’s free matching tool can help you find an advisor today.
Evaluate Decisions in the Context of Your Plan
First off, I recommend you think about whether the decision to sell your Nvidia stock was made with your best interest in mind. Your broader financial plan, which should emphasize your long-term goals, will often determine what’s in your best interest. Unfortunately, what might seem to make the most sense in the short term is not always what’s best for the long term.
Based on the information provided, it sounds like this might be the case. More importantly, it seems that you do trust that your advisor made the decision with your best interest and long-term goals in mind – which is great.
That said, it can be useful to further understand what happened after your advisor sold the stock. Did he reallocate the proceeds in a way that made your portfolio more balanced to align with your agreed-upon plan? Validating whether this is the case can provide peace of mind that he was, in fact, acting in your best interest. (A financial advisor can help you build a long-term plan for your investment portfolio. Find an advisor today.)
Consider the Reasons You Hired Your Advisor
Similar to the previous point, it can be helpful to reflect on why you hired your advisor in the first place. Often, individuals hire advisors to help them achieve their long-term goals in a holistic manner. The true value comes not from outperforming the market in the short term, but from helping you build a plan that allows you to execute complex planning items that you might not have otherwise been able to carry out alone. Investments are only one part of the equation, though they are admittedly the most tangible and resonant for clients.
As you think through the Nvidia situation, also recall the other pieces of your plan that you and your advisor have worked on together. Has he put in place components of your plan that would have been difficult to execute on your own? Has he managed your overall portfolio effectively through the volatility the market has experienced since you first hired him? While still early in your partnership, has he gotten you on track otherwise to achieving the long-term goals you established?
With respect to investments, keep in mind that advisors generally build diversified portfolios intended to align with your long-term goals, and it is unlikely that they will successfully time every trade in your account. As noted, this goals-based approach – not beating the market in the short term – is often the primary motivation for hiring an advisor.
At the core of a diversified portfolio is strategic asset allocation, an approach that calls for finding the right balance of different asset classes and periodically rebalancing to stay within these targeted thresholds. Studies have shown that strategic, long-term asset allocation decisions drive approximately 90% of returns, meaning tactical moves, like market-timing, have little impact on helping you achieve long-term goals. (And if you need help with your asset allocation, consider speaking with a financial advisor.)
Importance of Communication
Perhaps the most important piece to evaluate is the communication you have with your advisor. Trust is most effectively established and maintained through healthy communication practices. How would you characterize the level of transparency in your communications with your advisor?
From your perspective, it could be helpful to understand the advisor’s decision-making process – both for investment and financial planning moves – and the rationale that underpins decisions like when to sell a stock.
From the advisor’s perspective, it’s critical for him to appreciate how you prefer to be informed about investment and planning decisions so that nothing gets lost in translation as he implements a plan to help you achieve your goals. It is also possible that you would like to be more involved in these decisions, which is perfectly acceptable. Just make sure to communicate this desire to your advisor, and be sure he is open to collaborating more closely in this way.
It can be challenging to reverse course if a transparent, two-way dialogue is not established early on, especially if trust becomes fractured. Therefore, for any client-advisor relationship, be sure to make your communication preferences known early, and ensure you understand up front how your advisor makes decisions on both investment and planning items. This should help facilitate open conversations and enhance trust. (And if you would like to find a new advisor, consider using SmartAsset’s free tool to match with one.)
Focus on the Future
Decisions, of course, are easiest to evaluate in hindsight. What might seem like a poor decision to sell Nvidia today could represent a sound move to better align your overall portfolio with your investment objectives (including required returns and risk tolerance) and your broader financial plan. That level of holistic alignment across investments and planning could benefit you over the course of decades, potentially more than short-term profits from a stock sale, although that’s admittedly difficult to evaluate for anyone today.
Also, it’s important to realize that similar situations might happen in the future. There will always be high-flying investment opportunities that your advisor might miss out on, or perhaps not time perfectly in your own portfolio. Establishing norms for how you expect to communicate and understand the thought process when these times come will set you and your advisor up for a successful mutual relationship.
Bottom Line
Moving on after an advisor misses an opportunity to lock in larger gains from an investment is incredibly difficult, even if the advisor had a sound reason for doing so. As a client, always understand the “why” behind your advisor’s decisions so that you can trust the decision was made with your best interest – and long-term goals – in mind. Ensuring you are informed is the advisor’s responsibility as well, so keep them honest to make sure they hold up their end of the bargain.
Tips for Finding a Financial Advisor
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When hiring a financial advisor there are some important bits of information you should obtain prior to making your final decision. Here are 10 vital questions to ask a financial advisor before hiring one.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid -- in an account that isn't at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Jeremy Suschak, CFP®, is a SmartAsset financial planning columnist who answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Jeremy is a financial advisor and head of business development at DBR & CO. He has been compensated for this article. Additional resources from the author can be found at dbroot.com.
Please note that Jeremy is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset, and he has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
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