Maybe you have been told to really grill your prospective financial advisor. For most of us that is often just too distasteful a task. And why start a fruitful relationship on such a cynical note? Well in the below Q and A we do it for you. After all, we agree you should ask the tough questions.
The following quote is from Jason Zweig’s column in the Wall Street Journal September 9th, 2017 edition at: https://blogs.wsj.com/moneybeat/2017/09/08/the-special-trick-to-find-the-right-financial-adviser/:
“A lot of Wall Street Journal readers have told me they think hiring a financial adviser is a waste of money. I disagree. A good adviser doesn’t only manage investments but can help you save or make a fortune through better decisions on tax, estate and retirement planning, buying or selling a home or business, and so on. Such advice is worth paying for, and the biggest investment you can make in it is the time you put into picking the right person in the first place.”
Jason Zweig of the Wall Street Journal recommends you ask prospective advisors the following 19 questions in his August 31st, 2017 Column: http://jasonzweig.com/the-19-questions-to-ask-your-financial-adviser/
Below Skyline Advisors of Bellingham Washington answers the 19 questions:
- Are you always a Fiduciary, and will you state that in writing?
Skyline: Yes, for all the services offered by Skyline (RIA), we act as the Fiduciary and we will put this in writing. We do as a convenience, to some of our clients maintain their commission business. Some clients need us to us to provide services such as performance reporting, liquidation planning and liaising with the assets custodian for their previously purchased commission products. It is not a problem to specify those assets that need the exception to the “always a Fiduciary” in our written pledge for fiduciary work. We do less than 5% of our work in the commission business area and frankly we hope it goes to zero %.
- Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services?
- Do you participate in any sales contests or award programs creating incentives to favor particular vendors?
- Will you itemize all your fees and expenses in writing?
Skyline: Yes, in fact we dedicate a good deal of time to informing you of the expenses to you. Please see our previous blog on August 25th 2017 at: https://www.myskylineadvisor.com/hide-go-seek-price-tags/
In our management fee report to you we plainly state: billing period dates in a from and to format, the dollar amount of fee, the balance in the account it was charged on, the annual management percentage rate of the fee, and the quarterly fee rate.
- Are your fees negotiable?
- Will you consider charging by the hour or retainer instead of an annual fee based on my assets?
Skyline: No. We have chosen to do well at a few things rather than mediocre at everything. We can and do refer this type of business outside of our firm for now. We may in the future do this type of work.
- Can you tell me about your conflicts of interest, orally and in writing?
Skyline: By being in business and asking for your business there is a conflict in that we generally prefer you to choose us over a competitor. We also have the broker dealer relationship mentioned in question number one above. Our preferred custodian is Charles Schwab and that is a conflict in that there could be a custodian out there with more or different offerings and better pricing.
- Do you earn fees as adviser to a private fund or other investments that you may recommend to clients?
- Do you pay referral fees to generate new clients?
- Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance?
Skyline: If you need our services you probably do not need budget coaching. We do focus on investment management, estates and retirement. The other areas we will seek outside help for you.
- Do you earn fees for referring clients to specialists like estate attorneys or insurance agents?
- What is your investment philosophy?
Skyline: Our investment philosophy relies on foundational investment principles including asset allocation and diversification within an open-architecture platform where choices and independence provide a framework for our investment portfolios and advice. We consider your income needs, taxes, automatic deposits and liquidity needs. Life happens and your strategy should be updated accordingly. Low cost investment solutions, manager’s ownership in the investment and investment income will always be among the important things in our investment philosophy.
- Do you believe in technical analysis or market timing?
- Do you believe you can beat the market?
- How often do you trade?
Skyline: Seldom. We rebalance 1 or more times a year as needed. We do not believe frequent trading adds value to client portfolios. That said accounts with money being added and funds needing to be generated and sent out will have rebalancing more often.
- How do you report investment performance?
Skyline: First off, we do not make our own reports in house. Our performance reports are produced by a third party. Then we show you your investment performance net of all fees over different time periods beside indexes that replicate components of your portfolio and both the general stock and bond markets.
- Which professional credentials do you have, and what are their requirements?
Skyline: In our firm, we have three Certified Financial Planners® or CFP®, three Accredited Investment Fiduciaries® or AIF®, one Chartered Retirement Planning CounselorSM or CRPCSM and one Registered ParaplannerSM or RP®. To learn about the requirements of CFP® certification go to: https://www.cfp.net/become-a-cfp-professional/cfp-certification-requirements . To learn about the requirements of AIF® go to: https://www.fi360.com/products-services/designations-overview/aif-designation To learn about the requirements of the CRPCSM go to: http://www.cffpinfo.com/crpc/ To learn about the requirements for a RP® go to: http://www.cffpdesignations.com/Designation/RP
- After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term?
Skyline: This is great question and is worded with precision. If every investment provider had to talk about investments net of fees, taxes and inflation these conversations would be better. This is called “real return”. The other type of return is called “nominal return” which you can think of as the newspaper published gross return with nothing deducted from it. Unique to each investor, the real return for you is calculated only after learning your tax bracket and the tax status of your account (IRA, Roth or fully taxable account), the current inflation rate and what fee we charge based on your account size. Recently the Vanguard Group published its 2017 Economic and market outlook and according to Vanguard a moderate growth investor with an allocation of 60% stocks and 40% bonds has a projected 10 year rate of return of 3%-5% net of inflation. As mentioned above we must meet to factor in fees and taxes. See important disclosures and details of the hypothetical return quoted above at: https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvComVEMOinfographic
- Who manages your money?
Skyline: We do.
- Are you always a Fiduciary, and will you state that in writing?
This article is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Skyline Advisors and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Skyline Advisors unless a client service agreement is in place.