Jason Zweig, financial writer and columnist at The Wall Street Journal, wrote a piece titled "19 Questions to Ask Your Financial Advisor." The list of questions provides a nice checklist for anyone currently working with an advisor or in the process of searching for some financial guidance. Below is the list of questions, as well as my responses to them. This is a list that any advisor you’re considering should feel comfortable providing you answers to. If you can’t get a straight answer from them, keep searching for an advisor until you do.
Q: Are you always a fiduciary, and will you state that in writing?
A: Yes, I act as a fiduciary to all our clients. As a fiduciary, I am required to act in client’s best interest including duties of care, loyalty and prudence. I am also a member of several organizations that require a signed fiduciary oath to be a member, including XY Planning Network and NAPFA
Q: Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services?
A: No. The only money I receive has to come from clients. Not for recommendations, not for referrals, not as commissions.
Q: Do you participate in any sales contests or award programs creating incentives to favor particular vendors?
A: Nope, not at all.
Q: Will you itemize all your fees and expenses in writing?
A: Yes, every client receives a proposal that has my fees detailed for them. Fees are also then explicitly listed in our signed agreement. These fees include any fees paid to me, though they don’t include mutual fund fees, trading fees, etc., which any investor would end up paying. I work to minimize these other expenses, though they cannot be eliminated.
Q: Are your fees negotiable?
A: My fees are based on the situation and individual complexity, and I know they often come in well below the industry norms. With that in mind, I do not negotiate with prospective clients regarding fees.
Q: Will you consider charging by the hour or retainer instead of an annual fee based on my assets?
A: Yes, the majority of my business is on retainer. I don’t offer hourly planning but do projects based on an estimated number of hours and then provide a specific quote ahead of time. This allows clients to feel like they can call and ask questions, and not feel as though a clock begins running every time they contact me.
Q: Can you tell me about your conflicts of interest, orally and in writing?
A: As a fiduciary, I work to minimize any potential conflicts of interest, and will disclose any that may arise. For example, for clients who I do manage their investments, I could potentially make more money by recommending a rollover from a previous 401k than recommending the 401k be left where it is currently. Before making any recommendations, I discuss the benefits and drawbacks, as well as costs, of each option.
Q: Do you earn fees as adviser to a private fund or other investments that you may recommend to clients?
Q: Do you pay referral fees to generate new clients?
A: No. While I always appreciate my current clients recommending me to their networks, I do not pay any referral fees.
Q: Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance?
A: Financial planning has to be holistic. Investments are just one piece of a much larger puzzle, and must be tailored to the life, timeline, values, and situation of each individual. We can talk about anything that has a dollar sign associated.
Q: Do you earn fees for referring clients to specialists like estate attorneys or insurance agents?
A: No. I work with outside professionals (attorneys, CPAs, insurance agents) to service our clients’ needs but do not generate fees as a result of these relationships.
Q: What is your investment philosophy?
A: I believe in a disciplined investment approach designed to capture, not beat, the market returns over a long period of time. I do not believe in trying to time the market. Each client will go through a process to determine the appropriate amount of risk for them to take, and we’ll then set up a low-cost, passive investment philosophy. We revisit the plan annually or if you have a substantial change in your life, but I do not encourage clients to react to world events.
Q: Do you believe in technical analysis or market timing?
Q: Do you believe you can beat the market?
A: Over the long term, it’s extraordinarily unlikely that any individual investor would beat the market. Many end up costing themselves enormous sums of money attempting this endeavor. My goal is to help you capture market returns and avoid the common mistakes many investors make.
Q: How often do you trade?
A: We do not trade very often and are always mindful of taxation and capital gains. When appropriate, we take the opportunity to rebalance client accounts or harvest certain tax losses. I do not offer advice on individual stock trades or timing of those trades.
Q: How do you report investment performance?
A: For clients who use my investment management services, your investment performance will be available to you on an ongoing basis through our technology partners. We report investment performance as total return, including dividends, net of fees.
Q: Which professional credentials do you have, and what are their requirements?
A: I have earned a Certificate in Financial Planning from L.S.U, and am a CFP® Candidate.
Q: After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term?
A:While we can’t be certain of the future, history tells us that a moderately aggressive portfolio might deliver 4% - 5% return while a more conservative portfolio might deliver 2% to 3%, over long term horizons, after inflation.
Q: Who manages your money?
A: I do, and I invest my own money using the same strategies and companies I recommend to clients.