Many investors evaluate not only their portfolio performance but also their relationship with their financial advisor from time to time. Many times people base their evaluation of their advisor on their portfolio performance, but there are other components to consider. Asking these questions can help you determine if you and your advisor are mutually aligned:
Question #1: Are you a fiduciary?
A fiduciary has a legal and moral responsibility to take care of your assets and act in your best interest. A fiduciary is a financial advisor (person) who receives compensation for the management of your assets and the financial advice they give.
Why is this important? There is a critical distinction between being a steward of a client’s assets vs. pitching products to generate a sale.
Question #2: What fees do I pay?
There is no such thing as an investment that doesn’t cost you anything. You should always ask so that you know what you’re paying for.
Fees that are a part of the assets under management include fund management fees, portfolio management or asset-based fees, platform fees, charges on commissions, trades, M&E fees, and rider fees. All costs associated with your portfolio are dependent on where the funds sit. We welcome your inquiry on what your specific fees are for each fund in your portfolio.
Question #3: How are you compensated, and by whom?
Advisor compensation can be very complicated when it involves commissions. Many times there is compensation for advice as well that may not include commissions. In reality, commissions are usually how an advisor makes their income, by selling you investment products. The commissions are paid to the advisor who sells you a product from the fund-company or broker-dealer; if they don’t sell you something they don’t get paid.
Understanding advisor compensation is essential for determining an investment’s true cost.
Question #4: Where do my portfolio and investment recommendations originate at your firm?
Many times when you purchase investment products, the product itself sits with the broker-dealer or at the wirehouse. Sometimes the firm, not the advisor, often is responsible for creating portfolios. The recommendations advisors give you in these circumstances originate from the broker-dealer or wirehouse based on the portfolios they’ve designed. There may be other recommendations or products that ensure the client’s portfolio meets their situation, timeline, or risk tolerance.
Question #5: Who handles my account?
Depending on your situation, your account may sit at a broker-dealer or with a wirehouse. You may need to have one person assist you with one transaction while another helps you with something different if you rely on customer service if you don’t work directly with a financial advisor.
In other business models, the advisor will focus on specialties they each have. They will help you because each client is a client of their firm. You have access to each member of their team depending on your circumstances, which may change from time to time and require individualized help or advice.
Asking questions of your advisor is your right; after all, they work for you. If you have questions about our relationship or your investments, please don’t hesitate to ask.
