Jason Zweig, columnist at the Wall Street Journal, wrote a column some time back about 19 questions you should ask your financial advisor, or potential advisor. Below are his questions with his recommended answers in parentheses and my answers below.
- Are you always a fiduciary, and will you state that in writing? (Yes.)
Always and absolutely. At no time do I ever act as a part-time fiduciary, which some advisors do. You know, they are a fiduciary when preparing your financial plan and then slam you into some high-commission product.
- Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? (No.)
No. The only fee I receive is the flat fee of $4,800 paid directly by my clients.
- Do you participate in any sales contests or award programs creating incentives to favor particular vendors? (No.)
Nope. No exciting vendor-sponsored trips for me. Heck, I don’t even get investment product-sponsored lunches and dinners like when I was at Merrill Lynch, which seemed to be daily.
- Will you itemize all your fees and expenses in writing? (Yes)
Yes. Not only is it important to understand the fees you pay me as your advisor but also the expenses for the investment products clients use.
- Are your fees negotiable? (Yes.)
Yes, but not in the way Mr. Zweig would like. I do not negotiate my fees down, however, I have the ability to increase them if I have a client whose needs demand more of my time (which means less time for other clients). To this point I have not taken on a client who hasn’t been able to fit within my $4,800 fee.
- Will you consider charging by the hour or retainer instead of an annual fee based on my assets? (Yes)
Well, I already charge a flat fee, which most people in the industry refer to as retainer. So, I guess this is a yes. And if you have read any of my stuff, paying based on your assets is the dumbest way to pay for financial advice.
- Can you tell me about your conflicts of interest, orally and in writing. (Yes, and no advisor should deny having any conflicts.)
Yeah, unfortunately I have some as we all have conflicts. Mine come down to certain types of investment products and companies I simply cannot stand and refuse to ever recommend to my clients. However, I do believe my flat fee model keeps me as clear from financial conflicts of interest as much as possible, although I do take on new clients.
- Do you earn fees as adviser to a private fund or other investments that you may recommend to clients?
Nope. Again, just the $4,800 flat fee.
- Do you pay referral fees to generate new clients? (No)
No. I don’t get involved in referral fees, which is more common than you may be aware of, especially when it comes to CPA firms and financial advisors who love to share clients and fees.
- Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance? (Here the best answer depends on your needs as a client.)
As a CFP®, I focus on the whole picture. I actually turn away potential clients who solely want investment advice as I am not a stock broker and I cannot serve them effectively.
- Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? (No)
No. Even if this were permitted in Ohio I would still stay clear of it.
- What is your investment philosophy?
This could get lengthy and you may want to refer to my website. It can be summarized as keeping your fees and taxes as low as you can, don’t try to outperform the market, make sure your investments reflect your personal goals, and, finally, do your best not to do dumb stuff.
- Do you believe in technical analysis or market timing? (No.)
No. The only technicians and market timers I know who make money are those who sell newsletters to people searching for the silver bullet (the bullet is low fees).
- Do you believe you can beat the market? (No.)
Nope. And if anyone tells you they can they are trying to sell you something.
- How often do you trade? (As seldom as possible, ideally once or twice a year at most.)
The only normal trading I do is when a client’s account needs to be rebalanced, which is usually once a year.
- How do you report investment performance? (After all expenses, compared to an average of highly similar assets that includes dividends or interest income, over the short and long term.)
Everything is net of fees and versus a comparable benchmark.
- Which professional credentials do you have, and what are their requirements? (Among the best are CFA [Chartered Financial Analyst], CPA [Certified Public Accountant] and CFP, which all require rigorous study, continuing education and adherence to high ethical standards. Many other financial certifications are marketing tools masquerading as fancy diplomas on an adviser’s wall.)
CERTIFIED FINANCIAL PLANNER™ (They require me to write it out in all caps. Talk about a bunch of egos).
- After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term? (If I told you anything over 3% to 4% annually, I’d be either naive or deceptive.)
3-4% is a reasonable estimated return once you factor in fees, inflation and taxes.
- Who manages your money? (I do, and I invest in the same assets I recommend to clients.)
Little old me and in a manner similar to my clients.
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