Is Your Financial Advisor Right for You?

If you’re like most recent college grads and young professionals, your life feels busy. You’re working hard to grow in your career, you’re probably side hustling to pay down debt, and you’re trying to maintain some semblance of a personal life.

If you’ve added kids, volunteer responsibilities, a spouse, or another big responsibility to the list, you may feel as if your time is at maximum capacity.

Of course, you’re reading The College Investor, so you know that investing for your future is important, but you probably don’t have a ton of time to invest . . . in your investing. In fact, after learning some basics about the stock market, you may have opted to outsource your investments to a financial advisor or an automated investing platform (aka a robo-advisor).

But did you choose the right advisor? Are their fees too high or their returns too low? Without interviewing every advisor on the market, how can you know? Those are the questions that StackUp is helping users answer.

Does StackUp do a good job of evaluating financial advisors and investing algorithms? We looked under the hood of the technology to help you decide whether to get your advisor report card or not.

StackUp generates a “financial advisor” score ranging from zero to five stars. The financial advisor ranking compares your advisor (or even you if you self-manage your account) over four areas.

The areas include the following.

StackUp can track your returns starting when you first sign up for the platform. It’s unreasonable to judge your performance over the course of a few days or even a few weeks, but after a few quarters, you may want to see how your performance compares with other similar investors.

It’s really important to understand that StackUp ranks and compares returns for “conservative” investment portfolios to other “conservative” investment portfolios. Likewise, “aggressive” returns will be compared to the returns of other “aggressive” investors. StackUp has five investment buckets.

You can measure the risk of your portfolio using several metrics. One of the most common methodologies for measuring risk is the Sharpe ratio. It takes a bit of work to measure the Sharpe ratio, but it shows you whether your returns are due to excess portfolio risk or due to smart investing.

Instead of measuring the Sharpe ratio of your portfolio, StackUp measures your “crash test” rating. Essentially, it tells you how many dollars you would have lost in your portfolio, and compares that to the benchmark of other similar investors.

To judge your allocation, StackUp compares your position to the average position of other investors with similar risk tolerances and timelines. It only considers three buckets for allocation: stocks, bonds, and cash.

Finally, and most importantly, StackUp shows you how your fees compare to similar investors. Are you overpaying for a professional manager? Is your robo-advisor ripping you off? It’s important to figure these things out, and StackUp offers clarity surrounding the fees.

In particular, the paid version of StackUp can show “fee layering” which is the cost you’re paying for professional management and the cost of the underlying funds.

You might also consider looking at FeeX to see how individual fund fees are for your portfolio.

StackUp offers a free report to all users. You will get a report, an advisor report card (how your portfolio performance compares to other users), monitoring, and alerts.

The premium version costs $29.99 per quarter and includes detailed information on the factors influencing your advisor report as well as questions to ask your advisor.

The insights from the free StackUp report offered interesting insights. It’s certainly worthwhile to consider the fees you’re paying for professional management so you can decide whether it’s worth the cost.

It’s also important for all investors (even those paying for professional management) to see a clear picture of their portfolio allocation, their risk, and their returns.

The trouble with StackUp isn’t the insights it offers. The trouble that I see with the platform is that it dismisses the value of a good financial advisor. A good financial advisor may get paid charging you a percentage of assets under management (1% per year is a common fee). But the value of a professional advisor has less to do with their professional management, and much more to do with their professional advice.

Has your financial advisor given you savings and investing goals? Have they helped you buy the right insurance policies for your family? Are they encouraging you to stick with your investing plan when “markets seem overheated” or when you hear about some hot new investment opportunity?

Of course, your advisor also gives you advice about portfolio allocation. A few investment advisors will actually actively manage your portfolio using proprietary algorithms or unique market insights.

If you’re specifically looking for an investment advisor that outperforms the market given your risk tolerance, StackUp seems like a good tool. But most people care more about meeting their personal goals than about outperforming the market.

If you hired a financial advisor without thinking too much about it, I would urge you to look at the free report from StackUp. You deserve to know about the fees you’re paying, the risk you’re taking, and more. Plus, the report can help you think through important investing questions to ask your advisor.

Even if your advisor is a robo-advisor, a report from StackUp can help you decide whether the robo-advisor seems like a good fit for your needs (if it isn’t, you can design your own portfolio using free investing platforms like M1 Finance — it will even rebalance for you).

That said, take the advisor report card from StackUp with a grain of salt. StackUp applies a one-size-fits-most algorithm to your advisor, and that algorithm certainly misses the human side of investing. When it comes to stock market investing, good behavior beats good algorithms most of the time.

It’s important to consider how your advisor helps you to save more and to avoid investing pitfalls just as much as it is important to see how your advisor actually invests money.