You need your car’s dashboard to drive safely. It tells you how fast you’re going; how much fuel you have; and alerts you when something is going wrong.
You can think about the monthly reports you get from your financial advisor as a dashboard for your family’s wealth. They should help you understand what assets you own, how much risk you are taking and how your investments—and your investment advisor—are performing. They are an essential tool for keeping your finances safe.
Unfortunately, too many investors don’t get adequate reporting and that means they’re driving blind when it comes to their family’s finances.
The reports you receive should be built on the foundation of what’s known as an investment policy statement (IPS).
What is an IPS?
An IPS is an agreement between you and your advisor. It establishes how much risk you are willing to take in your portfolio. It does this by setting down what kind of investments you are going to own and how much of them you are going to own
Your monthly reports should allow you to monitor your portfolio and make sure you are on track with your IPS. They should show you how much you have invested in different asset classes—from safer fixed income securities to riskier investments like equities.
And within each asset class, you should be able to see where your money is invested. In the equity bucket, for example, you should see how much is in the various markets—Canada, the U.S. and international.
Your report should show you how each of these categories compares to the targets you established in your IPS. Say you targeted 60% of your portfolio for equity and you’re currently at 65%. You are overweight in equity.
That’s not unusual, but it could mean you’re taking on more risk than you want. So, it may soon be time for your advisor to rebalance your portfolio by selling some equities and buying some fixed income securities to restore your target asset mix.
Where are your investments held?
Your report should show not only what investments you own, but also where they are held for tax purposes. How much is in registered accounts such as your RRSP? How much is in taxable accounts? This is important to make sure your tax treatment is optimized.
But it doesn’t stop there.
For one thing, you may be following not only your own investments, but also those of your spouse and children. If you are a wealthier person, you may have a family trust and a holding company to track.
You may also have several different investment managers to monitor, each with different investment styles—active or passive— and different fees they are charging you.
And there’s more – pension payments, capital additions and withdrawals, currency exposure, private investments, and so on.
It’s a lot and it’s changing every day. If you’re like most people, you can’t keep track of it all yourself—it’s just too complicated and too time consuming.
Reporting from many firms is inadequate
But the reports from many firms aren’t much help. They leave out key information like investments managed by third parties.
That’s dangerous for your financial health. You need good reporting that you gives you the wholepicture. And to get the full picture, you need a trusted, independent financial advisor who can pull all the pieces together, help you interpret them and take the appropriate actions to keep your family’s finances on track.