If you are retiring soon or just exploring a relationship with a financial adviser, be sure to ask these 10 questions during the interview process. And interview at least three advisers. This should give you a good sense of whom you want to work with and why.
1. Are you a fiduciary?
There are many "professionals" that call themselves financial advisers. However, not all are created equal. The first question you should ask any prospective adviser you meet with is "Are you a Fiduciary?"
A Fiduciary has a legal obligation to do what is in the best interest of the client. Non-fiduciaries need only to recommend products that are “suitable” — even if they’re not the lowest-cost or most ideal for you. That’s why you want to know about the fiduciary rule and ask potential advisers if they follow that standard. At 80/20 Financial we are a Fiduciary Adviser.
2. How do you get paid?
Advisers can use a variety of fee structures. To keep it simple and avoid conflicts of interest, focus on fee-only or fee-based advisers. Fee-only or fee-based advisers might charge a percentage of the assets they manage for you (1% is common), or they charge a flat fee for services or an hourly fee.
If you are being "sold" a product for your entire retirement solution you are dealing with a commissioned salesman only. See 80/20 Financial fees here. We are a fee-based fiduciary adviser.
3. What are my all-in costs?
In addition to paying the adviser, you could face other fees — and you’ll want to know what they are. Fees can decimate your savings over time. An adviser might advertise a certain fee. But all of your investments will have a fee as well. For example, every mutual fund has an expense ratio.
Basically that is a management fee that the mutual fund charges to manage the fund. This isn't necessarily a bad thing, but these fees can vary greatly.
4. What are your qualifications?
Financial professionals can have a confusing list of initials behind their names. Probably the most common is the CFP aka Certified Financial Planner. Designations are good, but don't pick an adviser based on a designation alone. A designation means they passed a test. That's all it means.
Most states, including the state of Missouri, require that you pass certain tests based on that states requirements. Again, ask about qualifications, but don't get hung up on initials behind someone's name.
5. How will our relationship work?
Put another way: How much access will you have to the adviser? You want to know how often you’ll meet and whether they are available for phone calls or emails outside of scheduled appointments. At 80/20 Financial we would like to meet with our clients at least once per year or more depending on your needs. We are always available by phone and you will have a client portal access via our website so you can see your investments at anytime you wish.
6. What’s your investment philosophy?
At 80/20 Financial, we take the approach that your financial goals dictate your investment plan. We establish your goals and then we create a financial plan to accomplish those goals. We then devise a specific portfolio strategy that is appropriate for the execution of that plan.
7. What asset allocation will you use?
You’ve heard how important it is to be diversified, right? Your asset allocation is how you create a diversified portfolio. You don’t want someone who is just going to pick "hot" stocks for you. Your portfolio should include domestic and international stocks, and small-, mid- and large-cap companies. At 80/20 Financial Services we invest your money in various mutual funds based on what your lifetime retirement goals are. We do not advocate investing in single stocks as it relates to your retirement nest egg.
8. Who is your custodian?
Ideally, your financial adviser has hired an independent custodian, to hold your investments, rather than act as his or her own custodian — à la Bernie Madoff, the notorious financial adviser who defrauded clients through a multi billion-dollar Ponzi scheme. That provides an important safety check.
9. How does Tax Planning play a role if I invest with you?
This helps ensure the adviser has your tax bill in mind when making financial decisions. And asking about taxes is a way to explore what your estimated net return might be. Taxes should always be considered in any Financial Plan. We want to pay all the taxes we are legally obligated to. However, we don't want to leave Uncle Sam a tip.
10. What is your promise to me?
Many salesman will promise you the moon and stars and some will even promise unrealistic returns to get your money. If an adviser promises you a certain rate of return, you run like the wind and find a professional that actually knows what they are talking about.
At 80/20 Financial we aren't salesmen. We are teachers and here is our promise to you.
Contact us today for a no obligation second opinion from someone you can trust.
Thanks for reading,
Brian Coleman/Retirement Planner/Investment Manager