Questions to Ask Your Financial Advisor – Part 2

Last week, we wrote Part I of a blog post in response to the Wall Street Journal’s Jason Zweig’s column ** encouraging people to ask their financial advisor 19 questions. Today we answer questions 10-19.

We hope you find this Q and A informative and helpful to you.

While these questions focus on very specific issues, the relationship between a client and their financial advisor must be based on trust and many intangible factors. These factors are not part of Zweig’s questions.

As we stated last week, 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, we encourage you to discuss both sets of questions with your current broker or advisor, and compare their answers to ours. See whose answers makes you the most comfortable and confident that the advisory firm is fully aligned with your financial interests and has a long-term investment philosophy, approach and range of services which best meets your needs.

10. Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance? We provide comprehensive services to our clients, which includes investment management as well as other topics as clients request them. As CPAs with significant investment and financial experience, we are uniquely qualified to provide guidance, alternatives and ideas on a wide range of financial issues. We work with our clients on these issues, may times to help them deal with hard to address topics. We help them move things forward, take the next step and make decisions. We have extensive experience with complex issues, such as estate planning, generational planning, and charitable giving. These services are part of our advisory fees. We do not sell life insurance or draft estate plans, but provide advice in these areas.

11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? No. We do not get compensated for referring clients to other professionals. We strive to match the needs of our clients with other professionals who would be a good fit for them.

12. What is your investment philosophy? We have utilized the same long-term investment philosophy since our firm was founded in 2003, which is guided by the concept of global diversification through the use of asset class mutual funds, the appropriate allocation between stocks and fixed income and rebalancing. We believe every investor should have a written investment policy statement based on their specific situation, need and ability to take risk.

  • Most brokers and financial consultants do not have an investment philosophy beyond the concept of trying to pick the best stocks or mutual funds. We have an investment philosophy which is clearly defined and proven to be successful over the long term.

Investing for the long-term requires patience and discipline. We work with you to provide these. We accept that uncertainty is an inevitable aspect of investing. We help you by managing your risk and by implementing diversification at many levels.

We have a consistent market philosophy and systematic investment process which provides greater transparency to you. This should increase your confidence that our strategy will deliver its objective and enable you to have a better client experience.

See our answers to 13, 14 and 15 below.

13. Do you believe in technical analysis or market timing? No. We do not believe that market timing or technical analysis (making market predictions based on stock charts and trends) can be consistently successful over a long period of time. To be successful at either of these requires someone to be correct twice, when to sell and when to buy, for each decision they make, repeatedly over a long period of time. We do not believe these provide the best strategy for your financial future.

14. Do you believe you can beat the market? Financial industry performance data shows that actively managed mutual funds and professional money managers cannot consistently outguess and beat their respective benchmarks over the long-term, for all asset classes. For further information, see our blog posts, What Are the Right Investmentsand 10 Things You Should Know. Thus, we use very low cost, asset class mutual funds, which are similar, but not identical to index funds, to provide you with a better chance of outperforming most actively managed mutual funds.  Dimensional Fund Advisor (DFA), the primary stock mutual funds we recommend, “35 year track record of outperforming indexes and peers is a testament to both the validity of the idea and the investment approach.” ***

Rather than attempting to pick individual stocks by forecasting or other methods, we increase expected returns by giving greater weight to small, value and high profitability stocks. Data shows that small company stocks outperform large company stocks in the long-run. Similarly, value outperforms growth and International outperforms the US, over the long-term. Based on this evidence, we allocate more of your portfolio towards the asset classes with the greater expected returns, rather than investing most of your assets in US Large company stocks (the S & P 500), if that is defined as the “market.” See our blog post,A Better Way to Invest in Stocks.

Another way to view our goal: you should be comfortable throughout your life so you can meet your financial needs and goals through the assistance of our portfolio structure and our guidance during the difficult times of investing, when markets go down. In this manner, we believe that we will secure you a real-life outcome which will be superior to that achieved by the vast preponderance of your friends and peers.

15. How often do you trade? In general, we trade infrequently. Once we develop your initial portfolio, we make trades based on significant market movements which require us to rebalance your portfolio, as well as when you have life changes and as you get older. If we have discussions and change your investment allocation, we would make trades. We may also place trades, as needed, when you add or withdraw money from your accounts. Academic evidence shows that less trading correlates to better long term investment performance. For more on rebalancing, see blog post The Benefits of Disciplined Rebalancing.

16. How do you report investment performance? In the quarterly reports which we provide, your net investment return both in dollars and on a percentage basis, after deducting our fees, are shown over various time periods. It is simple and easy to understand. The custodian, usually Fidelity Investments, provides monthly statements, which you can receive by mail or online.

17. Which professional credentials do you have, and what are their requirements?Both principals are CPAs and hold the Personal Financial Specialist (PFS) certification from the AICPA, which is similar to a CFP (Certified Financial Planner) for CPAs. The PFS certificate requires significant hours of work within the financial planning profession, rigorous study, continuing education every year and adherence to high ethical standards. The CPA designation requires similar items, as well as a passing a multiple day exam.

18. After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term? This is a difficult question to answer, as much of it depends on each specific person, as well as many factors which are subject to change. For a globally diversified stock portfolio, we would project a 10% long term return, before inflation and costs. However, there would be significant volatility from year to year, above and below this amount.

Your long-term expected return would be dependent on your allocation between stocks and fixed income (whose return is based on inflation and Federal Reserve policy) and this allocation will change over time, based on your financial goals and needs.

Our investment strategy would minimize the tax effect of your investments more than most other approaches. We utilize tax managed funds (which very few brokers recommend) and the funds have very low turnover, both which provide you with greater after-tax returns. Inflation currently averages around 2% per year. Our advisory fee would be 1% and the internal expense ratio of the stock portfolio we recommend would be around .30% for a client’s $1 million stock portfolio. Our advisory fee would be less for larger portfolios.

19. Who manages your money? Our investments are managed by our firm, in the same investments as our clients. Again, our financial interests are completely aligned with our clients. See blog post, Does your financial advisor invest as they recommend?


This week’s takeaway: We are confident that our investment strategy and comprehensive services will secure you a real-life outcome which will be superior to that achieved by the vast preponderance of your friends and peers.


** The 19 Questions to Ask Your Financial AdviserWSJ, August 26, 2017  (link maybe blocked by WSJ paywall)

*** Source: DFA’s 35 Quotations on a Better Way to Invest, quote 23, 2017


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