19 Questions to Ask Your Financial Advisor
Jason Zweig of the Wall Street Journal wrote an article in 2017 about questions to ask your financial advisor. It has some great nuggets to ask any advisor you are considering working with. I wrote my answers below but you can read Jason’s full article along with his suggested answers here.
1. Are you always a fiduciary, and will you state that in writing?
Yes. I am a full-time fiduciary for my clients, and I think all advisors should be held to this standard. My flat fee retainer reinforces the fiduciary model by reducing conflicts of interest. If I recommend a client to take the lump sum pension or to purchase life insurance, it is not because I get paid more to do it. It’s because I think it’s in their best interest.
2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services?
No. See above. My only compensation is the flat fee my clients pay. That is not affected by products and services that clients use.
3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors?
No sales contest here.
4. Will you itemize all your fees and expenses in writing?
Yes, $6,000 per year ($1,500/quarter). I also inform clients of the underlying expenses of their mutual funds and ETF’s. I aim to be as transparent as possible. You can read more about my fee structure and why I chose it here.
5. Are your fees negotiable?
No. I think that I charge a fair price for the services I provide.
6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets?
I do charge a flat retainer fee that isn’t based on a client’s assets. I don’t charge by the hour because it sometimes creates hesitation when clients want to reach out.
7. Can you tell me about your conflicts of interest, orally and in writing?
My flat fee helps reduce conflicts of interest, but it doesn’t eliminate them. I am compensated by working with clients. This creates an interest in working with more clients which can be a conflict. I need to be able to add enough value to make it worth the fee that my clients pay me. I try to communicate this value during the introductory meeting with prospects. That helps them make an educated decision on what is in their best interest. Another conflict is if I continuously add new clients, I won’t have enough time to provide the services promised. To alleviate this, my goal is to limit the number of families I work with to 80.
8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients?
No. All the investments I use are publicly traded. I don't receive kickbacks, 12B-1 fees or any other compensation.
9. Do you pay referral fees to generate new clients?
No. I sometimes refer clients and prospects to attorneys, CPAs and other advisors. Sometimes, attorneys, CPAs and advisors refer to me but there is never any compensation.
10. Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance?
I help clients manage their entire financial lives. That includes investment management, financial planning and reducing taxes. Financial planning is a broad term but includes helping clients achieve their life goals, planning for what could go wrong and making sure assets transfer efficiently to the next generation. You can read more about the services I provide here.
11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents?
No. Please see above.
12. What is your investment philosophy?
I don’t think investors can consistently outperform the market through superior skill or market timing. I believe in the principles of investing and focusing on what you can control. You should invest in a diversified portfolio of global asset classes and stay disciplined. You can't control the market but you can reduce drag on the portfolio by minimizing investment costs, taxes and turnover. Once people accept this, it frees them to focus on what they can actually control. There are few guarantees in finance but you can make decisions that put the odds in your favor.
13. Do you believe in technical analysis or market timing?
No. See above.
14. Do you believe you can beat the market?
No. See above.
15. How often do you trade?
Rarely. Accounts are analyzed frequently to check for rebalancing opportunities. Trades are only placed when allocations are significantly out of balance. Even in volatile markets, there is minimal trading throughout the year.
16. How do you report investment performance?
Clients receive monthly statements from the custodian as well as quarterly reports from Level Wealth Management. The quarterly reports show performance net of fees for the quarter and year to date. They also show relevant benchmark performance (Including dividends and interest) alongside portfolio performance.
17. Which professional credentials do you have, and what are their requirements?
I am a CFP® professional – CFP® professionals must pass the comprehensive CFP® Certification Examination, have a bachelor’s degree, have at least 6,000 hours of experience and agree to abide by CFP Board's Code of Ethics and Professional Responsibility and Rules of Conduct which put clients' interests first. Once certified, 30 hours of continuing education must be completed every two years.
18. After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term?
Everyone worries about the next market downturn, but inflation, taxes and fees are a much bigger threat to your portfolio. This answer depends on your allocation but 3% is a reasonable estimate and 4% is getting optimistic.
19. Who manages your money?
I manage my money and use the same funds that I recommend to clients