We know it can be hard to decide on who to trust with your hard-earned life savings. Throughout the years we’ve found a recurring list of questions that can help you discover the right wealth advisor for you.
What investments/companies do you recommend?
If an advisor typically recommends a specific type of investment or a specific company/companies, chances are they represent their own interests, not yours. One of the biggest red flags that screams product salesman instead of valued advice-giver is if he/she just recommends mutual funds or just annuities. Would you trust a doctor that represents only a couple of pharmaceutical companies or prescription drugs? Of course not. What are the chances that you’ll receive a good financial “prescription” from an advisor that only recommends a single or a couple types of investments?
The only (right) way to give healthy wealth advice is to offer a very broad and diversified range of investment approaches and advice that is custom-engineered for each client family, not some cookie-cutter approach. There isn’t a “Swiss army knife” investment product that can solve all of your problems, rather a true wealth advisory team will custom-blend a host of investment strategies to help you find retirement bliss and protect and create wealth in good and sour markets.
What’s your performance over the last 5 or 10 years?
As soon as you see the glimmer of a slick-looking marketing sheet with impressive historical returns your antennae should go up. Although at first it may sound surprising, this is a danger sign because this proves that the advisor consistently recommends the same investments to each and every client. Don’t you want to be treated like a human instead of a number? How could your unique challenges and aspirations be like every other client? For years we’ve struggled when asked this question because we don’t have a one-size-fits-all plan. We believe in taking great care and time in custom-engineering each investment plan, because you are unique and no two clients are the same. The optimal approach to managing wealth is to not only take into account the investment strategies, but also making them tax efficient by reviewing the tax return each year, and crafting a personal pension plan so you’re confident that you won’t run out of money in retirement. This is called our Fiscal Home.
What are your fees?
Contrary to common belief there IS NOT one right way to pay for financial advice. There are only three ways that financial advisors get paid for their advice and each and every approach has its pros and cons.
Fee-Only: by far the most touted by the media and talking heads alike, fee-only advice is when you pay a one-time flat fee for a financial plan. Fees often generally range from $500 to $10,000 or more depending on the complexity of the plan. When paying a flat fee it’s important to understand what value you’re receiving for the fee you’re paying. The downside to paying a flat-fee for a financial plan is that most of the time you’re responsible for actually implementing the plan, kind of like buying the blueprint for a house but you have to buy all the materials and build it yourself.
Fee-Based: another popular approach to paying for investment advice is fee-based management. This typically is a percent fee levied on your portfolio in return for professional management. Fee ranges are all over the map, but generally average somewhere between 1.00-2.50 percent of the total value of the investments being managed (note: paying a management fee to someone to pick a portfolio of mutual funds can be costly! Easily 3-4 percent or more a year in fees!). The most crucial component to deciding whether a fee is low or high is what true value you’re getting from paying the management fee. If the portfolio is closely mimicking the overall market it’s probably not worth paying for a manager, but if the manager tends to generate reasonable returns regardless of the markets tantrums you may have a winner. The downside to fee-based management is that even in troublesome years in the market, the manager still gets paid, so it’s important to hire managers that can, and have done well in good times and more importantly weathered the bad times.
Commission-Based: the more popular option (by advisors) is to earn a nice commission by recommending a fund or similar investment. There’s great confusion surrounding commission-based compensation, but it may not be all bad for you because there are two types of possible commissions, one type comes out of your pocket (a sales load, usually 3-6 percent of your investment right off the top) or the type that is paid from the company’s pocket (paid to the advisor from the company he/she’s recommending – the commission is considered a marketing expense by the company). Either approach, however, naturally can create a conflict of interest for the advisor to recommend the option that pays him/her the most, which is why it’s critical to only hire an independent advisor that is legally bound to put your interests above and beyond theirs. This is known as an investment fiduciary, be sure to ask your advisor or the one you’re considering if they are a true fiduciary. In its simplest form a fiduciary is required by law to do what is in his clients’ best interests not what’s in his or his company’s best interests. This sounds reasonable, right? CFOs of major companies are fiduciaries, church and nonprofit treasurers are fiduciaries, even your doctor is a fiduciary of sorts because he/she must give you advice designed to make you healthy…shouldn’t your financial advisor be a fiduciary?
What’s the best option to pay for quality wealth advice? A combination of them. A true wealth advisor will offer any of the three or a blend of them based on your personal preferences.
What’s the minimum investment to work with you?
All businesses go through different stages of growth and the wealth advice business is no different. During the fledgling years, financial advisors will accept any client that has money and can fog a mirror, but as their business grows, matures and becomes more sophisticated, smart wealth managers will set an investment minimum that you must meet to work with them. If an advisor accepts clients of all ages and investment sizes, how could they possibly create a compelling client experience for you and the rest of their clients?
In any business it comes down to the choice of quantity or quality. For example, Wal-Mart focuses on quantity (herding a high volume of customers) and the customer experience suffers greatly whereas Nordstrom focuses on quality (serving the right customers) and their client experience is second to none. We purposefully choose and create the Nordstrom experience for our clients because we would rather give each member of our client family the care and attention that they deserve and desire.
How are you different from other advisors?
If an advisor can’t answer this question clearly, make a beeline for the exit. An advisor cannot be all things to all people and actually be exceptional at what they do. As in the medical profession, it’s important to seek out the advice of a specialist when your situation demands it. For instance, if you’re wanting to reduce debt and you hire an advisor who specializes in people ages 50+ chances are you’ve got the wrong guy. Conversely, if you’re seeking wisdom on how not to run out of money in retirement and your advisor doesn’t specifically specialize in creating retirement income plans chances are you won’t receive the best advice. The key is to align yourself with the wealth advisor who specializes in people just like you!
We recognize that we’re not the right fit for everyone – nor do we want to be – and not everyone is the right fit for our client family. We believe that you can only be the best at what you do if you specialize…and we specialize exclusively in helping people near/in retirement, executives, and public service personnel who are open to a different perspective.