Top 10 Important Questions To Ask Your Financial Advisor This Year

Top 10 Important Questions To Ask Your Financial Advisor This Year

Dear Friend,

Did you know there are approximately 310,000 financial advisors in the U.S.?

Did you know there are over 200 designations for financial advisors?

(E.g. Terms such as “financial consultants,” “wealth managers,” “financial advisors,” “investment consultants,” “wealth advisors,” and ever exclusive “private wealth manager”).

Did you know doctors, lawyers and accountants are legally required to act in the best interests of their clients at all times?

Did you know financial advisors get a pass on that requirement?

Did you know, less than 10% of financial advisors are a Registered Investment Advisor (RIA) and therefore legally required to act in the best interests of their clients at all times?

(RIAs don’t accept sales commissions. Instead, they typically charge a flat fee or a percentage of your total assets for unbiased financial advice. It’s a cleaner model that removes awkward conflicts of interest and hidden agendas.

(If there is a potential conflict of interest, RIAs are required to disclose it. Brokers don’t need to do this).

When you start to think about it, navigating the world of financial advisors and trying to determine who is looking out for you can create a whole lot of stress and anxiety.

Here are 10 Questions To Ask Your Financial Advisor To Understand What Advice You’re Really Getting (And Reduce Your Discomfort):

  1. Are you a Registered Investment Advisor (RIA)?

If the answer is no, this advisor is a broker. Smile sweetly and say good-bye. If the answer is yes, he or she is required by law to be a fiduciary, which means they must act in your best interest. But you still need to figure out if this fiduciary is wearing one hat or two. That’s because it’s not enough that your financial advisor is an independent RIA. You need to be careful that the RIA is not also a broker.

Client First Answer: We are a Registered Investment Advisor (RIA) and not a broker. We are an independent fiduciary. We operate in the best interest of our clients, at all times and on all accounts. We represent our clients. Our clients pay us a fee for unbiased, expert financial advice.

  1. Are you and your firm associated with a broker-dealer?

If the answer is yes, you’re dealing with someone who can act as a broker and usually has an incentive to steer you to specific investments. One easy way to figure this out is to glance at the bottom of the advisor’s website or business card and see if there’s a sentence like this: “Securities offered through [advisor’s company name], member FINRA and SIPC.” This refers to the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation, respectively. If you see these words, it means he or she can act as a broker.

Client First Answer: We are NOT associated with a broker-dealer.

  1. Does your firm offer proprietary mutual funds or separately managed accounts?

You want the answer to be an emphatic “no.” If the answer is yes, then watch your wallet. It probably means they’re looking to generate additional revenues by steering you into these products that are highly profitable for them (but probably not for you).

Client First Answer: We do NOT offer proprietary funds or separately managed accounts.

  1. Do you or your firm receive any third-party compensation for recommending particular investments?

This is the ultimate question you want answered. Why? Because you need to know that your advisor has no incentive to recommend products that will shower him or her with commissions, kickbacks, consulting fees, trips, or other goodies.

Client First Answer: We do not receive 3rd party compensation kickbacks. However, we do receive commissions when a new life insurance policy, health insurance or fixed annuity is involved in your financial plan. These products are part of your overall holistic financial strategy. We communicate with our clients what’s involved when these financial products are discussed.

  1. What’s your philosophy when it comes to investing?

This will help you to understand whether or not the advisor believes that he or she can beat the market by picking individual stocks or actively managed funds, or they’re just buy and hold and wait out the market while your money is stuck (and sinking).

Client First Answer: Markets are a means towards mitigating the ongoing inflation risk to our retirement. That being said, markets are not our friend. While many investment theories say investors should buy everything (diversify) and hold forever (be passive), we disagree. By studying economic law, the interaction of supply and demand, we can identify opportunities; when the reward outweighs the risk. We use our exclusive Adaptiv Investment Management System© to identify such opportunities. Much like a sea captain cannot control the ocean, but uses wind, wave, and technology to reach the desired destination, the Adaptiv System© uses price, the interaction of supply and demand, to identify trends and relative strength within markets. While the Adaptiv System© cannot control markets, it can be used to navigate them and reach our retirement destination. Rather than buy and hope, we can buy strength, sell weakness, and protect accounts when market storms generate too much risk.

  1. What financial planning services do you offer beyond investment strategy and portfolio management?

Investment help may be all you need, depending on your stage of life. But as you grow older and/or you accumulate various assets to manage, things often become more complex financially. For example, you may need to deal with saving for a child’s college education, income tax planning, retirement planning, handling your vested stock options, auto & home insurance planning or estate planning. Most advisors have limited capabilities once they venture beyond investing. In fact, most aren’t legally allowed to offer tax advice due to their broker status. Ideally you want an advisor who can bring tools for tax efficiency in all aspects of your planning — from investment planning to business planning to estate planning.

Client First Answer: We are committed to holistic planning, strategically aligning a client’s financial, insurance, tax and legal goals and objectives through a well-coordinated holistic plan with the appropriately licensed experts at our firm. Client First has Certified Financial Planners to strategically plan and coordinate all the financial efforts. You’ll see your entire financial picture in one place with one team.

  1. Where will my money be held?

A fiduciary advisor should always use a third-party custodian to hold your funds. For example, Fidelity, Schwab, and TD Ameritrade all have custodial arms that will keep your money in a secure environment. You then sign a limited power of attorney that gives the advisor the right to manage the money but never to make withdrawals.

Client First Answer: We use TD Ameritrade (primary) and Charles Schwab (secondary) to hold our clients’ funds.

  1. Do you hold the CFP (Certified Financial PLanner™) designation?

Today more than ever, CERTIFIED FINANCIAL PLANNER™ professionals are an essential resource. From budgeting, to planning for retirement, to saving for education, to managing your taxes and your insurance coverage, “finances” doesn’t mean just one thing for most Americans — and “financial planning” means much more than just investing. Bringing all the pieces of your financial life together is a challenging task.

Although many professionals may call themselves “financial planners,” CFP® professionals have completed extensive training and experience requirements and are held to rigorous ethical standards. They understand the complexities of the changing financial climate and know how to make recommendations in your best interest. As of this writing, there are less than 82,000 CFPs in the US.

Client First Answer: Justin Krueger, Head of Financial Planning for Client First, is a CERTIFIED FINANCIAL PLANNER™ and holds the highly regarded CFP® designation. He is experienced in finding blind spots in your financial plans and stress testing your retirement readiness.

  1. How will our relationship work?

Put another way: How much access will I have to you? You want to know how often you’ll meet with the advisor and whether he’s available for phone calls or emails outside of scheduled appointments.

Client First Answer: The short answer is as often as needed. The longer answer is we have it all documented with our services offering listing which details everything for the program of your choosing. Our normal process is to meet in person with our financial planning clients twice per year. However, you have access to our team all year if you need us. Also, given our FREE education and client events, you’ll see us more than you might like. We kinda become like family, except without the crazy Cousin Eddie.

  1. How do you help me with taxes?

A good financial advisor should do more than just recommend investments. Ask your advisor about how s/he will decide how to optimize your tax profile. Just so you know, the answer isn’t, “Go check with your accountant.” Remember, investing is not just about the money you earn, it's about the money you keep. Taxes are a large expense item and if your financial planning doesn’t take that into consideration, you could be inadvertently setting yourself up for disappointment with an untimely tax bill.

Client First Answer: The tax strategy, preparation and retirement experts at Client First (IRS Enrolled Agent & CPAs) have been helping people plan around the tax codes for years.

You may need help with:

  • Identifying tax deductions you’re entitled to
  • Deferring income to pay lower tax rates
  • Reducing taxes on investment gains
  • Converting Traditional IRAs to Roth IRAs
  • Preventing mistakes leading to IRS penalties
  • Setting up a tax efficient estate plan

Tax considerations are vital to planning and financing a comfortable retirement.

Taxes affect your ability to invest. Before retirement, withheld taxes can significantly alter your available funds for long term investment. Many people like the larger tax return they get from overwithholding, but this represents money lost. Excessive withholding is essentially lending your money to the government for free – these funds could better be used to grow your own investments.

If you have long-term investments, they’re affected over time by your changing finances, and by changing tax codes. Constantly optimizing your investment and minimizing taxes becomes incredibly complex and prone to error.

We do not manage assets based on tax efficiency. We are pure risk management and net return seeking.

There’s more to gain when focused on asymmetric risk / reward opportunities.

We hope these 10 questions will help you navigate the financial advisor environment and find the answers you are looking for this year.

Never stop your curiosity and always understand the type of advice you’re getting.

If you’d like to ask more questions of us or dive a little deeper in the answers you’ve already read, feel free to reach out to us at 262-335-1700.

Enjoy the year and we look forward to seeing  you soon!

All the best,

Paul Zarling
Managing Partner

P.S. Feel free to follow us on Facebook and Twitter to get the latest on financial related information impacting your portfolio and personal income and expenses.

P.P.S. The article was based upon and abridged from articles written at CNBC, Nerdwallet  and Marketwatch on these same topics.


By | 2018-07-09T20:12:07+00:00 June 19th, 2018|Blog, Equities, Fees, Financial, Security, Stocks, Taxes|0 Comments