Questions to Ask Your Financial Advisor – Part I

One of the best personal finance journalists in the business, Jason Zweig of the Wall Street Journal, wrote a column** last Saturday stating that “the burden of finding someone who will act in your best interest is on you.

“The obligation of those who give investment advice to serve clients, not themselves, is called fiduciary duty,” Zweig wrote. Our firm always acts in this fiduciary manner.Many brokers and other advisors do not. This makes a real difference, whether you realize it or not.

Zweig’s column provides 19 questions to ask your advisor and recommends listening for the best answers.

We thought it would be informative to you, our clients and others, to provide his exact questions and our answers in this and a future blog post.

If you are a client of our firm, we hope you find our answers re-assuring and comforting.

If you are not a client of our firm, discuss these questions with your current broker or advisor, and compare their answers to ours. See which one makes you the most comfortable and confident that your interest comes first. Always.

  1. Are you always a fiduciary and will you state that in writing? Yes, we have always acted as fiduciaries and will always continue to do so. As both principals of the firm are CPAs, we are required as CPAs to always act in a fiduciary manner. This means that we always act in our clients’ best interest, ahead of our own interest. The Investment Advisory Agreements with our clients will be amended this fall to specifically state that WWM will act as a fiduciary to each client.
  2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? No. Our only source of compensation is from the advisory fee our clients pay. We are not paid commissions by any mutual funds. We do not earn more to recommend one type of investment over another. We are different than brokers who may recommend or sell annuities and certain mutual funds, which the brokers may be paid up front commissions of 5-8% and then ongoing compensation as you hold the product (whether you know it or not).
  3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors? No. Never have and never will. We do not receive any compensation from a vendor for any investment which we may recommend. Many brokers receive these types of incentives.
  4. Will you itemize all your fees and expenses in writing? Absolutely yes. We discuss our advisory fee in initial meetings and it is clearly stated in our Investment Advisory Agreement, which you sign when you become a client.
    • In comparing advisors or different firms, you should also review the cost of the underlying investments. We can clearly provide this to you. We recommend stock funds or ETF’s which are among the lowest cost mutual funds in the industry. The average internal cost (expense ratio) was 1.28% for stock mutual funds in 2016.*** We would use individual bonds, which would have no annual expenses or a very low cost bond fund, depending on the size of your portfolio. Other advisors may be much less transparent in this area….and usually much more expensive.
    • In almost 15 years of business, we have never been more expensive in comparing total costs with a prospective client, when all advisory fees and expenses are included.
  5. Are your fees negotiable? We have a standard fee schedule, which begins at 1% for up to the first million of assets which we manage. That fee declines as assets under management increase. We may vary from our fee schedule in certain circumstances, based on the specific situation.
  6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets? No, we do not plan to change the way we charge. We are interested in mutually beneficial long-term client relationships. We want to be very involved with our clients. We want our clients to contact us when they have issues or financial questions to discuss. If we charged by the hour, clients may be hesitant to consult with us as frequently. As stated above, we have found that our fees and the total costs incurred by our clients are very competitive.
  7. Can you tell me about your conflicts of interest, orally and in writing? We strive to be as free from conflicts of interest as possible. As Jason Zweig points out in another column, almost every business has some type of conflict of interest.
    • We do not have the conflicts of interest that many brokers or Financial Consultants may have, such as being compensated more for recommending specific investments or annuities. We advise our clients based on what is in their best interest, not ours.
    • We would have a conflict of interest when advising someone whether they should use money from their investments rather than take a mortgage to purchase a home, for example. We would have a conflict, as we are compensated based on the size of their account. In this situation, we provide the pros and cons, based on the specific situation and recommend what we feel is in that client’s best long-term financial interest.
    • We have frequently told clients to spend money to take trips and gift money to relatives or charities, all of which was in their best interest, but to our financial detriment. We want clients who work with us for the long-term and that means striving to always provide advice which is in their best interest.
  8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients? No.
  9. Do you pay referral fees to generate new clients? No.

This Week’s Takeaway: Our financial interests are completely aligned with your financial interests. Our only form of compensation is the advisory fee paid by our clients. If you make money, we make money. If your account declines, so does our revenue. These statements cannot be made by many brokers and financial consultants at large financial institutions and banks. Ask these questions. And listen carefully to the answers.

 

**The 19 Questions to Ask Your Financial Adviser, WSJ, August 26, 2017  (link maybe blocked by WSJ paywall)
***2017 Investment Company Factbook, icifactbook.org
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