How to Evaluate Your Investment Manager: 6 Questions Worth Asking
Key Takeaways
Returns only mean something when compared to the right benchmark
A risk questionnaire is not the same as understanding your downside
The advisor you meet with may not be the one managing your portfolio
Proprietary products and layered fees can quietly reduce what you keep
Every trade in your account should have a reason you can understand
Why Most People Never Evaluate Their Investment Manager
Most people hire an investment manager once.
Then they stop asking questions.
The statements arrive. The balance goes up most years. Everything seems fine.
But seeming fine and being well managed are not the same thing.
Most people don't avoid these questions because they don't care. They avoid them because they don't know what to ask.
The Question I Ask Clients:
When someone comes to me with an existing portfolio, I usually start with one question.
Could you explain, how your portfolio is managed and what it costs you?
Most people can't.
That's not a failure on their part. It usually means no one ever explained it clearly.
The six questions below are how you get that clarity.
1. How Do You Measure My Performance?
A return only means something when it's compared to something.
The right benchmark matches your actual mix of investments. If you hold 60% stocks and 40% bonds, comparing yourself to the S&P 500 tells you very little.
Ask a few follow-ups:
Are my returns shown before or after fees?
Are my returns in standard time periods (year-to-date, one, three, five, ten years, and since inception)?
Are my returns annualized or unannualized (unannualized can be very unclear)?
What benchmark are you using and why?
Over the last three to five years, has my portfolio beaten or trailed a comparable low-cost option?
If you've never seen your returns next to a fair benchmark, you could be leaving money on the table and not know it. An investment performance review should be a normal part of your relationship.
2. What Happens to My Portfolio in a Major Market Drop?
Many people filled out a risk questionnaire once and never have the discussion again.
Few have seen what their portfolio would do in a bad year.
Ask your manager to show you a downside scenario.
What would a 30% market drop mean in dollars? Would you need to sell anything to cover expenses? Has anyone talked with you about how you'd react?
A risk score on a form is not a risk assessment. Understanding the downside before it happens is.
3. Who Actually Manages My Portfolio?
The person you meet with may not be the person making investment decisions.
Sometimes decisions come from a home-office team. Sometimes an outside firm runs the portfolio. Sometimes your account follows the same model as thousands of others.
None of that is automatically wrong. But you should know which applies to you.
Ask:
Who picks the investments?
Who decides when to trade?
Is my portfolio built for me, or am I in a model?
If an outside manager is involved, what does that cost me?
4. How Much Proprietary Product Do I Own?
Proprietary funds are created or managed by your advisor's own firm.
They aren't bad by default. The question is why they're in your portfolio and is there a better option that should have been chosen for you.
Ask what percentage of your portfolio is in the firm's own products. Then ask how those funds compare, in cost and performance, with similar non-proprietary options.
If that answer is hard to get or indirect, it's worth noting.
5. What Am I Paying in Total?
Most people know their advisory fee.
Fewer know everything else. Your total cost can include:
the advisory fee
fund expense ratios
platform or outside manager fees
trading costs
Ask for one number: your all-in annual cost in dollars. A transparent manager will give it to you.
6. Why Did Each Trade in My Account Happen?
Look at your recent trades.
Each one should have a reason you could explain in a sentence. Rebalancing. Tax-loss harvesting. A cash need. A change in your plan.
In commission-based accounts, trades can generate revenue for the advisor. Even in fee-only accounts, unnecessary trading can create taxes you didn't need to pay.
You deserve to know why your money moved.
How Dynamic Financial Planning Answers These Questions
I build and manage every portfolio directly. There are no outside managers and no proprietary products.
We're fee-only, so we earn no commissions on anything we recommend.
We stress-test your portfolio against real downside scenarios before we invest.
Our fee is tiered and published on our site, and we show you fund expenses up front.
Every trade fits your broader plan, and we coordinate with your CPA and other advisors.
You can see exactly how we manage portfolios here and we discuss it together.
The Bigger Perspective
Solid investment management isn't a mystery. It’s transparent and serves your needs.
You should be able to see how your portfolio is measured, what it costs, who runs it, and why it changes.
If those answers aren't clear today, it's a reason to ask the right questions.
Frequently Asked Questions
What questions should I ask my financial advisor about my portfolio?
Start with six. How is my performance measured, and against what benchmark? What happens in a major market drop? Who actually manages my portfolio? How much proprietary product do I own? What am I paying in total? Why did each trade happen?
How do I know if my investment manager is doing a good job?
Compare your returns, after fees, to a benchmark that matches your mix of investments. Then look beyond returns. A good manager explains your risk, your costs, and every trade clearly.
Is it bad if my advisor uses a third-party manager?
Not necessarily. Many advisors use outside managers or model portfolios. What matters is whether your portfolio still reflects your tax situation and goals, and whether you know what the outside manager costs.
How do I find out how much I'm paying my financial advisor?
Your advisor's fee schedule is in their Form ADV Part 2A. Fund expense ratios are listed in each fund's prospectus. Ask your advisor to add them up and give you one annual total in dollars.
About the Author
Anthony Syracuse, CFP® is the founder of Dynamic Financial Planning, a fee-only fiduciary financial planning firm based in Scottsdale, Arizona. Learn more about his background here.
He works with tech professionals and young families building meaningful wealth who are navigating complex financial decisions, including equity compensation.
Take the Next Step
If these questions raised more doubts than answers, a second opinion can help. Schedule your call here.
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Dynamic Financial Planning works with individuals and families in Scottsdale, Phoenix, and clients nationwide.
Disclosure: This content is for educational and informational purposes only and should not be construed as personalized investment, tax, or legal advice. All strategies discussed are general in nature and may not be suitable for all individuals. Past performance does not guarantee future results. Before making any financial decisions, consult a qualified financial advisor, CPA, or attorney who can assess your specific situation, risk tolerance, and financial objectives. Dynamic Financial Planning does not provide tax or legal advice.
