Are you in the market for professional financial guidance? Knowing which questions to ask a potential advisor is a great start. Since June 30, 2020, the Securities and Exchange Commission (SEC) has required Registered Investment Advisors and brokers to address a common set of questions through the Form CRS conversation starters. (P&A’s Form CRS lives here.) This allows a consumer to better compare apples-to-apples various advisors’ answers.
If you’re looking for additional questions or topics to discuss with a potential advisor, here are the 10 questions we’re asked most frequently by prospective clients. (Note: Some overlap directly or indirectly with the Form CRS questions linked above.)
1. Are you a fiduciary? A fiduciary is obligated to put their clients’ best interests first. This is the highest standard of care in our industry. Some advisors are held to this standard part of the time—when offering advice—but not when implementing their advice. Talk about confusing. A pure fiduciary doesn’t sell any financial products, which distinguishes them from other advisors held to a lesser standard of care. (P&A is a pure fiduciary.
2. How are you compensated? Most financial advisors—upwards of 90%–are compensated at least in part by selling financial products to their clients. Commissions, transaction charges, sales loads, revenue sharing…the list goes on and on as to how these advisors are paid. If you see “securities offered through…Member SIPC, FINRA” at the bottom of an advisor’s website, it means they are paid to sell you products, which introduces more conflicts of interest. (P&A is a fee-only advisor, and we don’t sell any financial products or earn commissions, etc.)
3. Who is your typical or ideal client? You want to ensure that a potential financial advisor has experience and expertise in helping people just like you. (At P&A, we specialize in working with people going through money-in-motion events. These include retirement, the sale of a business, an inheritance, or simply looking for a new advisor.)
4. What is your minimum relationship size? Many advisors will list their minimum relationship size on their website or in their marketing materials. This goes along with the previous question in determining whether you are a good fit for a financial advisory firm, and vice versa. (At P&A, our minimum relationship size is $500,000 for money in motion events.)
5. How often will you communicate with me? Lack of communication is one of the most common reasons cited for why a client leaves an advisor. Make sure your expectations of client communications are in line with the firm you’re interviewing. Also consider your preferred method of communicating (in-person, virtual, phone, email) and whether an advisor will accommodate you. (At P&A, we’re flexible and want to communicate in a manner and frequency that works for you. We view each client as a unique person with unique preferences. Our default is to reach out at least every three months.)
6. Have you or anyone on your team been cited for disciplinary reasons? You can look up the disciplinary record of any advisor online. Click here for SEC-registered investment advisors and click here for FINRA-regulated brokers and advisors. We would still encourage you to inquire about disciplinary history when speaking to an advisor or firm. In general, we’d be leery of working with an advisor who has a history of arbitration cases or client complaints against them. (At P&A, none of our advisors or team members–or our firm as a whole—has a disciplinary history with any of the financial regulators.)
7. Who holds my investment assets and cash? Bernie Madoff “made off” with his clients’ money because he was the custodian of these assets. There’s no better example of the need for an independent, third-party custodian to hold your investments. (At P&A, this role is filled by Charles Schwab & Co., a well-regarded financial institution founded in 1971. Schwab holds your assets and all checks are made out to Charles Schwab & Co., not to Pittenger & Anderson.)
8. What is your investing philosophy? Any investment manager should have a theory of how markets work and why they invest their clients’ money the way they do. More importantly, the advisor should eat their own cooking. In the case of P&A, here’s what we believe and how we behave:
- Patience and discipline are an investor’s friend. Fear and greed are the enemy.
- Market timing doesn’t work; staying fully invested is the best approach.
- Long-term is the only term. Success is measured in years and decades.
- Minimizing investment costs is key to your success.
- Market volatility is normal and to be expected. It also provides an opportunity.
- Keeping your money readily accessible (liquid) is vital.
- And yes, we invest our personal money in the same investments we use for clients.
9. How will I benefit by working with your firm? Many clients today want more than investment management, yet financial planning services vary greatly among financial advisors. Some provide comprehensive planning while others dabble in or don’t do planning at all. (At P&A, we add a lot of value on the planning side through tax-efficiency, charitable giving help, Medicare reviews, Social Security maximization, and finding blind spots as well as opportunities.)
10. What is your succession plan? Before you hire an advisor, you’ll want to understand who will take care of your investments should something happen to them. Is the firm a one-person show or is there a team of professionals to ensure your monies are taken care of for decades to come? And most people don’t want their advisor to retire before they do unless there’s a strong team ready to fill in. (At P&A, we have an experienced team of 13 professionals, all but two of whom are under the age of 50.)
We help people going through money in motion events, like retirement, the sale of a business, inheritance, or someone simply looking for a new advisor. If this describes you and you’d like to learn more about how we can guide you on your journey, please connect with us here. Thanks for reading!
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Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security. To learn more about our firm and investment approach, check out our Form ADV.
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