Questions Every Investor Should Ask Their Advisor
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
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
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.
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.