Just listen carefully to any advertisement from a typical investment company and you’re bound to feel a little warm and fuzzy. And then, there’s the old warning, “its in the fine print”. As you know, financial “people” are everywhere; from downtown to the bank. Whether you already work with an adviser or you’re thinking about it, here’s what you must inquire about as you disclose your very private, personal information to any financial planner, broker or adviser. The questions that follow should help you to set your expectations very high, because you and your family should settle for nothing less.
Will you have mostly proprietary investments? In general terms, proprietary investments are those which are developed by the primary firm, itself. For example, Fabulous Investments, Inc. is a financial firm. The firm happens to own and sell a dozen mutual funds called Fabulous Investment Funds. Those are called proprietary funds. So, if you have or have been presented with investments that have the same or similar names as the investment firm, I would strongly suggest that you get another opinion. Proprietary investments cause great concern in terms of objectivity…or the lack, thereof.
Is your adviser a fiduciary? I believe that the fiduciary duty is the gold standard in the financial industry. A fiduciary must be objective and pursue the best strategies for your objectives and goals. The guidance must be in your best interests and conflicts of interest, e.g., sources of compensation, must be disclosed. So how do you know if your adviser is a fiduciary?….Just ask
Does your adviser work for you? Consistent with being a fiduciary, its very important that your adviser works for you. In my opinion, advisers employed by many big-brand institutions may not be able to be completely objective. Frequently, production requirements and specific, packaged products might supersede the best guidance for you. I have been working with the public for over 30 years—I have seen that all too often.
Does your adviser have recommended, respected credentials? Now, it doesn’t mean that credentialed advisers are the absolute best, but its a good starting point. If your adviser does have letters after their name, I would implore you to look up the acronym and investigate the criteria for credential qualifications. You may be shocked to learn that some credentials can be used simply by joining an association, paying a fee and completing little or no educational curriculum. In a nutshell, look for experience, education and continuing education which are required for most industry-respected credentials.
Is your adviser an experienced tax adviser\preparer? Again, in my opinion, a thorough history of taxation and return preparation can be critical to precise guidance. You see, a financial adviser should be much, much more than someone who facilitates investments. Your financial world is chronically integrated with taxation. How could you expect cutting-edge advice without the requisite experience in tax preparation? And you may also be shocked to learn that frequently, in the fine print, the paperwork you have completed with your adviser may state something like, …we do not provide tax advice so please consult a tax adviser. Think about that—a financial adviser who can’t provide critical tax advice? Isn’t a tax return the core of your financial picture?…you have to do one, right? But still, it appears that your adviser may be prevented from, or be unqualified to provide detailed advice regarding the primary financial instrument in your financial world.
Finally, be certain to inquire about and understand how your adviser will be compensated. Its a very important question that may help you understand the fiduciary vs. salesperson distinction. And discuss your expectations for communications with an adviser. Your financial world can be very dynamic and you should insist on guidance-on demand.
securities offered through Leigh Baldwin & Co., LLC