19 Questions to Ask Your Financial Advisor
A few weeks ago 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 our response to them from the perspective of The Johnston Group.
Q: Are you always a fiduciary, and will you state that in writing?
A: Yes, as an independent Registered Investment Advisory Firm, we act as a fiduciary to all our clients. As a fiduciary, we are required to act in our client’s best interest including duties of care, loyalty and prudence. We manage our clients’ money and life goals in the same manner that we would for ourselves.
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, we are entirely independent and receive no other compensation from third parties through referrals or use of other outside services.
Q: Do you participate in any sales contests or award programs creating incentives to favor particular vendors?
A: No, we have never instituted any sales contests or developed any internal award programs. There are no incentives for employees to favor any vendors, investment vehicles or products.
Q: Will you itemize all your fees and expenses in writing?
A: Yes, our Engagement Letter and Investment Advisory Agreement, both of which are reviewed with clients prior to commencing any services, itemize all costs and fees associated with our services.
Q: Are your fees negotiable?
A: Our fees are not subject to negotiation between the client and our office. Instead, we offer three levels of client service depending on client profile and needs. Clients that choose basic planning services or investment management pay lower fees than clients participating in our comprehensive planning platform.
Q: Will you consider charging by the hour or retainer instead of an annual fee based on my assets?
A: Our office operates under an assets-under-management (AUM) fee schedule for ongoing client relationships. We do offer one-time planning services for a fixed fee or other planning projects based on an hourly rate. We feel confident in our current fee structure but are always open to exploring new processes and systems that would improve our overall client service model.
Q: Can you tell me about your conflicts of interest, orally and in writing?
A: Our strict adherence to the fiduciary standard ensures that our decision-making process is always in the client’s best interest. Any potential conflicts of interest are disclosed to clients and resolved in favor of the client’s interest.
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?
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: Through our unique Wealthcare360™ framework, our office provides comprehensive financial services beyond investment management. We help clients identify goals and organize their personal balance sheet and cash flow statement to align with this vision. We provide further advice and strategy in the areas of taxation, estate planning and insurance needs analysis. In our role as fiduciary, it’s difficult to manage our clients’ investment portfolios without this full perspective of their entire financial landscape.
Q: Do you earn fees for referring clients to specialists like estate attorneys or insurance agents?
A: No. We 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: Our investment philosophy focuses on each client’s goals, time horizon and cash flow to determine the appropriate portfolio for their assets. Once we have this perspective, we seek to deliver the investment returns necessary to meet their goals while assuming the least amount of risk. The core tenants of our investment approach are 1) low-cost, 2) tax-efficiency and 3) broad diversification. Additionally, we employ long term, evidence-based investing principles in our strategy, rather than base our decisions on speculation or short-term trends.
Q: Do you believe in technical analysis or market timing?
A: We do not manage portfolios based on charts or market timing techniques.
Q: Do you believe you can beat the market?
A: Our investment strategy isn’t focused on “the market” or other benchmarks. The only important benchmark is delivering the necessary returns to meet client objectives.
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.
Q: How do you report investment performance?
A: 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: Our office employs a Chartered Financial Analyst (CFA), a Certified Public Accountant (CPA), a Certified Financial Planner (CFP®), an attorney (JD) and a Certified Private Wealth Advisor (CPWA). All certifications require rigorous study, continuing education and adherence to high ethical standards. Our professionals also hold various trading and insurance licenses.
Q: After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term?
A: A reasonable estimated return is dependent on asset allocation and time horizon. After inflation, taxes and fees, a moderately aggressive portfolio might deliver 4%-5% return while a more conservative portfolio might deliver 2% to 3%.
Q: Who manages your money?
A: Our own internal investment department constructs and manages all client portfolios. Investment management is not outsourced to any third party.