We are retired and recently lost $100,000 from our wallet. Our advisor said that “we could lose another $100,000 in 2023.” Is that crazy?

If you decide to switch advisors, clarify your expectations and gain a good understanding of the new advisor’s investment philosophy.

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Request: I retired in October 2016 and my wife retired in January 2018. We had a nice next egg saved up at the time so we asked our finance guy to take over our accounts to help them grow. As of January of 2022, we had saved over $500,000 and had withdrawn none of that money. Fast forward to around October 2022, we watch the stock market go on its roller coaster and check our totals each month and mark them up in a ledger. We noticed that our 401(k) had lost about $100,000 since the end of 2021.

I reached out to the investment firm we use and they set up a phone meeting with a couple of investment advisers. All I wanted to know is why our retirement account was down nearly 25% because I had the understanding that because they were in control of our investments it would be monitored and the investments would be changed to prevent that from happening. At the end of this meeting, one of the advisors commented that we could lose another $100,000 in 2023. Since the end of 2022, our retirement account has grown by approximately $9,000. Should we swallow our losses and go to another investment firm or stick with the current one? (Looking for a new financial advisor? This tool can match you with an advisor that fits your needs.)

Answer: We are sorry to hear that your account has suffered this loss. Let’s look at how your advisor handled the situation, whether that loss was the norm in a tough market, and whether you should walk away from your financial advisor. (Looking for a new financial advisor? This tool can match you with an advisor that fits your needs.)

From what you’ve described, it sounds like your advisor is approaching your situation too casually (mentioning a seemingly casual $100,000 loss isn’t great) and may lack key communication skills. Indeed, Certified Financial Planner Matt Bacon of Carmichael Hill & Associates, says the advisor may have been “flirty and tactless or blasé,” which “isn’t great,” though he adds that “the empathy and tone count, but so does honesty.”

Have a problem with your financial advisor or are you looking to hire a new one? Email [email protected]

For his part, certified financial planner Robert Persichitte of Delagify Financial says, “I probably wouldn’t use the word ‘lose’ in a meeting with a client. Instead, I would point out that the value of the account could go down by $100,000 in the short term.” But he adds that he “wouldn’t hesitate to put a dollar figure to the downside with an aggressive stance” as SEC rules require disclosure of risks to clients and “it fosters better client relationships.”

In short, your advisor has some communication issues and that’s a big deal. That said, certified financial planner Cristina Guglielmetti of Future Perfect says a 25% drop is roughly in line with last year’s market performance — which is if you agree with your advisor on how to handle the money. Since you’re retired, some experts argue that your advisor should have suggested a more conservative approach, or at the very least shared with you that you’ve been invested in a decently aggressive manner.

The key to success is for everyone, including investment advisers and their clients, to be on the same page about risks and goals. “In this case, the advice may or may not be good, but it was poorly communicated. If you go for an aggressive investment strategy, these returns seem reasonable,” says Persichitte.

You also noticed that you thought that since they controlled your investments, they would prevent losses from occurring. Ask yourself, “Was this an assumption you made, or did your advisor indicate that this would be possible? More importantly, what conversations have occurred between you and your advisor about appropriate asset allocation and your risk tolerance? You indicated that you wanted a conservative approach and understood that you would likely be giving up long-term earnings in exchange for that stability,” Guglielmetti says. (Looking for a new financial advisor? This tool can match you with an advisor who fits your needs.)

In short, the one important thing to dispute is that your advisor does not appear to have effectively communicated with you that your portfolio could suffer a loss of this size. In fact, when managing investments, advisors have (at least) two jobs. First, they must make informed choices about investment strategy. Second, they must educate the client about the strategy’s possible outcomes, including the risks and benefits, says Persichitte.

It may be that the allocation was too aggressive — hence your big loss — and it might be worth consulting a few other planners to get their professional opinion before switching consultants, says Bacon. Fortunately, you can do this with a free consultation as many counselors offer a free call or meeting. “The market has had a terrible year, and it usually isn’t worth switching advisors just because of bad performance, but inappropriate funds or ill-advised strategy might be worth it given clients’ goals,” says Bacon.

If your advisor can’t adequately explain a strategy’s benefits and risks, Persichitte says it’s time to work with someone else. “The new advisor might recommend the same investment strategy, but if he can explain the risks and get the client’s informed consent, the client will be in a better position,” says Perischitte.

Meanwhile, certified financial planner James Daniel at The Advisory Firm in Alpharetta, Georgia, says his recommendation is to have a meeting with your current advisors to better understand their approach. “Are they making the investment decisions or is your portfolio part of a global business model? They also have safeguards in place to limit withdrawals,” says Daniel.

Also know this: It’s possible you won’t have any losses, assuming your money is still invested. “You will only make a loss if the investments in your account are sold below the base price. Be cautious about selling your investments and locking in a potential loss,” says Certified Financial Planner Mark Humphries of Sentinel Financial Planning. (Looking for a new financial advisor? This tool can match you with an advisor who fits your needs.)

For his part, certified financial planner Alonso Rodriguez Segarra of Advise Financial says 2022 was the seventh worst year in terms of results since 1926 for the S&P 500. “Remember, in the stock market you only lose when you sell and you always win something because the stocks and bonds pay you dividends and interest. Don’t look at your portfolio balance so many times because you’ll get stressed, and the markets have been shown to recover over time,” says Segarra.

If you decide to switch advisors, be clear about your expectations and get a good understanding of the new advisor’s investment philosophy to make sure you know what’s going on. “If both consultants have similar approaches, it’s unlikely the outcome will be very different,” Guglielmetti says.

Have a problem with your financial advisor or are you looking to hire a new one? Email [email protected]

Questions edited for brevity and clarity.

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