A few years ago, Jason Zweig, an author and columnist at The Wall Street Journal, published “The 19 Questions To Ask Your Financial Advisor.”
I liked the idea and wanted to provide my responses. I’ve also included Jason’s recommended answer in parentheses.
1. Are you always a fiduciary, and will you state that in writing? (answer you want: yes)
Yes. This is the most important question to ask your advisor. If they are not a fiduciary it means they are not legally required to do what is in your best interest.
Every advisor has a choice of how they choose to practice, and that decision says a lot about their professional values. It’s a big deal and something we take seriously.
2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? (answer you want: no)
No. All of the money I earn is directly from the hourly or retainer fees paid to me by my clients. I receive no additional revenue from any fund companies or custodians (like Charles Schwab).
3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors? (answer you want: no)
4. Will you itemize all your fees and expenses in writing? (answer you want: yes)
Yes. You can see my fees here.
5. Are your fees negotiable? (answer you want: yes)
Yes. I reserve the right to discount my fees in special circumstances, such as working with low-income families.
6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets? (answer you want: yes)
Yes. I’m currently available for hourly and ongoing retainer engagements.
My long-term goal is to only offer the ongoing retainer service, as financial planning is by definition a long-term process.
7. Can you tell me about your conflicts of interest, orally and in writing? (answer you want: yes, and no adviser should deny having any conflicts.)
Yes. I’ve tried to build a firm with as few conflicts as possible, but there is one: I have a financial motivation to take on additional clients. And the more clients I have, the less time I have to spend with each client.
To counteract this, I’ve limited my client list to 80 households. That way I will always be reachable and can continue to provide high-quality, personalized advice, while maintaining a good work-life balance for myself.
I also offer a Value Pledge, which states that if a client is not 100% satisfied with the value we provide they can request a refund for up to one year worth of fees.
8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients? (answer you want: no)
No. My only source of revenue comes directly from my clients.
9. Do you pay referral fees to generate new clients? (answer you want: no)
No. I pay no referral fees.
10. Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance? (answer you want: here the best answer depends on your needs as a client.)
I provide financial planning and investment management.
We focus on the financial planning topics that are most important and relevant to you. This includes: real estate decisions, stock option analysis, cash flow planning, retirement income planning (e.g., what is a “safe” spending rate in retirement), college planning, Roth conversions, and more.
In addition to our financial planning work, we manage your investments and review them regularly.
Learn more about our Services.
11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? (answer you want: no)
12. What is your investment philosophy?
We invest in a diversified, low-cost, tax-efficient manner using passive exchange-traded funds.
We don’t believe that you can beat the market, but think you are entitled to get market rates of return.
We emphasize keeping your investment fees as low as possible. For example, the expense ratios for our portfolios costs .05% to .07% annually ($50 to $70 per year for every $100,000 invested).
In addition, we harvest tax losses when applicable and rebalance when appropriate. Learn more about our Investment Philosophy.
13. Do you believe in technical analysis or market timing? (answer you want: no)
No. I don’t believe anyone can successfully time the market or utilize technical analysis to consistently beat the market.
14. Do you believe you can beat the market? (answer you want: no)
No. The evidence shows that approximately 80%+ of active investment managers who try to beat the market do not. That underperformance ends up costing clients a lot of money. Rather than trying to beat the market, you should just own the market. By doing that you will outperform the majority of other investors.
15. How often do you trade? (answer you want: as seldom as possible, ideally once or twice a year at most)
We place trades very infrequently. If there is new cash to invest, that requires trading. Or if you need to make a withdrawal from the portfolio, that requires trading.
Rebalancing happens once a year, or if your portfolio becomes misaligned as a result of big moves in the market.
16. How do you report investment performance? (answer you want: after all expenses, compared to an average of highly similar assets that includes dividends or interest income, over the short and long term.)
Clients receive quarterly performance reports. These detail your asset allocation, your short- and long-term performance, your investment positions, and a comparison to benchmarks. Clients also have daily, on-demand access to this information through Schwab.
17. Which professional credentials do you have, and what are their requirements? (answer you want: among the best are CFA [Chartered Financial Analyst], CPA [Certified Public Accountant] and CFP [Certified Financial Planner], which all require rigorous study, continuing education and adherence to high ethical standards. Many other financial certifications are marketing tools masquerading as fancy diplomas on an adviser’s wall.)
I’m a Certified Financial Planner. It is the standard for financial planning.
18. After inflation, taxes, and fees, what is a reasonable estimated return on my portfolio over the long term? (answer you want: if told anything over 3% to 4% annually, I’d be either naive or deceptive.)
This is a tough question. Nobody can predict future returns, but we have to make some assumptions in our financial planning software. Below are our nominal* return expectations for varying portfolio risk levels.
Inflation reduces returns by 1-2%, taxes by approximately 0.50% (although it depends on the tax structure of the accounts being managed). For a $680,000 portfolio, Think Different Financial Planning’s flat fee would reduce these returns by 1%, but for a $1,680,000 portfolio, it would reduce them by 0.40%. But after accounting for these three costs, you end up with “real” returns roughly in line with what Jason mentions.
19. Who manages your money? (answer you want: I do, and I invest in the same assets I recommend to clients.)
I do, and I invest in the same assets I recommend to clients. It’s a boring but extremely effective investment approach.
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