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The 19 Questions to Ask Your Financial Adviser

Posted: Ashley Cornner-Patel

An article was recently featured in the Wall Street Journal by renowned author Jason Zweig titled, “The 19 Questions to Ask Your Financial Adviser”. Zweig is the personal finance columnist for the Wall Street Journal and is one of the most respected writers in the finance industry. We highly recommend anyone who is interested in becoming better educated in personal finance and investing to add anything by Zweig to your reading list.

In his recent article, Zweig highlights some of the struggles that the industry and government have had in compelling all advisers to act as fiduciaries for their clients. The fiduciary duty is the highest legal duty of one party to another, and involves being bound ethically to act in the client’s best interest. There are proposed regulations that would make this fiduciary standard mandatory for most financial advisers. However, until these regulations are sorted out, it is up to the client to find someone who has their best interests at heart. He suggests 19 questions and answers that you should ask your advisers to confirm they are acting in your best interest. We list the questions along with his answers (in parenthesis), as well as some additional commentary by us as we agree with most, but not all his suggested answers.

1. Are you always a fiduciary, and will you state that in writing? (Yes.)
We are and anyone who is, must state that in writing.

2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? (No.)
How can an adviser give objective advice if they are paid by other parties to recommend products? Unfortunately, MOST advisers are paid by the companies whose products they recommend. We are only paid by our clients.

3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors? (No.)
Similar issue to #2. And no.

4. Will you itemize all your fees and expenses in writing? (Yes.)
It is posted on our website and in all our client’s contracts. We also summarize all fees paid by a client on a quarterly basis. If the fee you are paying your adviser is not clear and transparent, that should be a red flag.

5. Are your fees negotiable? (Yes.)
On this question we don’t necessarily agree with Zweig, mainly because we believe our fee to be fair, based on the service provided.

6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets? (Yes.)
This is an interesting question and we have considered it in the past. As of right now we are maintaining our asset based fee.

7. Can you tell me about your conflicts of interest, orally and in writing? (Yes, and no adviser should deny having any conflicts.)
Our fee structure and fiduciary status help us to avoid most conflicts of interest. However, when Zweig says “no adviser should deny having any conflicts” it’s because he feels ethical dilemmas are inevitable, and he’s right. Although we strive to be as objective and transparent as possible, there will always be situations where the interests of the firm do not perfectly line up with the interests of the client. We try very hard to be aware of any of these potential conflicts and mitigate them as best as possible. We are always open to discussing any potential conflicts.

8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients? (No.)
It is common practice for private partnerships to pay the adviser for recommending the fund to clients. Although we do recommend several private partnerships, we have never accepted a fee for placing a client in them.

9. Do you pay referral fees to generate new clients? (No.)
We do not.

10. 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.)
We advise on all the aspects mentioned above. We will however recommend a specialist for the actual implementation of your estate plan, insurance plan or tax preparation.

11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? (No.)
We do not. Our sole objective is to identify the best professional to accomplish the task for the client.

12. What is your investment philosophy?
First, the investment philosophy must be in the context of the client’s goals. These two are inseparable. The strategy will be different for a client who just wants the highest possible return, versus a client who is trying to retire. Broadly speaking, our investment philosophy is to maximize risk-adjusted returns using broad diversification, favoring cheaper assets that have a higher expected return and a focus on limiting losses to the downside. Of course, if you’d like a deeper dive on how we manage money we’d love to discuss.

13. Do you believe in technical analysis or market timing? (No.)
This is another issue that we don’t completely agree with Zweig. By and large, technical analysis (which is basically finding patterns in charts to make investment decisions) is difficult and can lead to a lot of unwanted risk. However, within a diversified portfolio, there are some simple technical metrics that have demonstrated an ability to help reduce risk and improve return. These metrics are simply a tool in the toolbox, and we believe our additive to our investment returns.

14. Do you believe you can beat the market? (No.)
Although we don’t completely agree with Zweig’s answer, we certainly understand the point. First, beating the market should NOT and is NOT the goal of our strategies. As mentioned earlier, the investment philosophy is based on achieving the client’s goals. Beating the market involves taking risks that could jeopardize those client’s goals. However, over a full market cycle, we certainly believe it’s possible to beat the market, at least on a risk-adjusted basis.

15. How often do you trade? (As seldom as possible, ideally once or twice a year at most.)
We don’t trade often, probably 2-3 times per year on average. This is important because many advisers get paid for recommending new investments, which incentivizes them to trade more often. More activity does not mean better results. (Usually the opposite actually)

16. 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.)
We report investment performance net of mutual fund fees and gross of our fee. We also compare performance to an average of similar assets that make up our benchmark. The reason Zweig highlights “including dividends and interest” in the benchmarks is because many investment advisers and insurance products compare performance to indexes that EXCLUDE dividends and interest. This is nonsensical and is done only to be deceptive and improve the relative appearance of their own performance.

17. 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.)
Currently, we have five CFP® professionals, one CPA, and one CAIA (Chartered Alternative Investment Analyst). Certifications help establish an expertise in certain areas that help improve the advice given to clients, and we will continue to pursue additional education opportunities when necessary.

18. 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.)
This estimate depends primarily on the time frame used and the amount of risk involved. Generally, we’d agree that return estimates are on the low end of history.

19. Who manages your money? (I do, and I invest in the same assets I recommend to clients.)
We invest our own money exactly as we invest client money. How much an investment manager invests in their own fund is a great indicator of future performance. Sadly, many money managers don’t invest anything alongside investors.

Zweig provides a huge service to prospective clients looking for an adviser with this piece. If you would like to discuss any of these questions in greater detail, please feel free to reach out to us. The link to the original article is:

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