Five Questions Every Investor Should Ask Their Advisor

  1. How Are You Compensated and what fees should I expect to pay?

    It is very important to understand how your advisor is paid and to also understand your “all-in” cost of working with that advisor. Determine if your advisor charges an asset-based fee or if they receive commissions from placing trades in your account. Some advisors may receive both! Other common fees include:

    • Planning Based Fees. These can be in the form of hourly fees, one-time special project fees, or a percentage of your investments.
    • Account Maintenance Fees. Some custodians charge you to open or close an account. Some may charge you an annual fee to keep the account opened.
    • Transaction Fees. Determine if you will have to pay transaction fees when securities are bought and sold.
    • Expense Ratios. Most advisors will recommend ETFs, Mutual Funds, ETN’s or some other type of investment that will also carry an additional expense. These can range from 0.03% up to 3% annually.
  2. Are you a Fiduciary?

    Registered Investment Advisory firms must act as a fiduciary for their clients and the recommendations not only have to be suitable, but they must be in the clients’ best interest. The fiduciary standard consists of a duty of loyalty and care. For example, fiduciary advisors are prohibited from making trades or recommendations that result in a higher commission for themselves or their investment firm – the recommendation has to be in the client’s best interest and not the best interest of the advisor making the recommendation.

  3. What are your qualifications and experience?

    Simply focusing on the number of years an advisor has been in the business can be very misleading. Just because the advisor has been around for a couple of decades does not necessarily mean that advisor is qualified to help you achieve your financial goals.

    It is important to determine what types of experience that advisor has providing different services. An advisor that has worked for an insurance company for 30 years that has only ever sold life insurance and annuities may not be the best qualified advisor to help you plan out your retirement.

    Another way to gauge an advisor’s experience is to ask about professional designations. One of the most prominent designations is the CERTIFIED FINANCIAL PLANNER or CFP® certification. This is considered the gold standard by many professionals. CFP® professionals are held to strict ethical standards and are required to go through a series of rigorous coursework and exams. CFP® professionals must have at least 3 years of financial advisory experience and a four-year college degree. They are required to take continuing education classes each year to keep up with industry trends.

  4. What services do you provide?

    Most investment advisors will claim that they can help you achieve your financial goals. However, this is a very generic answer and you should push a little more to determine which services are actually provided and which are not.

    For example, does your advisor provide tax planning services? Tax planning is a critical component in developing a sound financial plan. They may claim that they provide this service, but it is important to understand the scope of the service that they provide. Will they help you maximize your tax savings throughout retirement by doing proactive tax planning every year?

    Does your advisor provide retirement planning, Social Security optimization, Medicare planning, College Savings strategies, stock option planning, estate planning?

    Ask your financial advisor to provide a list of the services that they provide so you are clear that they have the capacity to help you actually achieve your financial goals.

  5. What is your investment philosophy?

    It is very important to understand an advisor’s investment philosophy before you engage them to provide you with advice or allow them to take over the management of your investment portfolio. Here are a few questions to ask that will help you understand their investment philosophy:

    • Are they passive or active? Do they use active mutual fund managers, buy individual stocks, or do they prefer to use low-cost index-based investments like ETFs?
    • What kind of securities do they typically use or recommend? Stocks, bonds, ETFs, ETNs, REITs, Mutual Funds, Private Placements, etc…
    • Do they recommend using Annuities? Annuities can be appropriate vehicles for some investors, but they are often times sold/recommended when other solutions are much more appropriate. So, it is important to understand your advisor’s position on annuities.
    • Do they have a rebalancing process? If so, do they have a systematic process or do they rebalance randomly – or do they even have a process for rebalancing?
    • Do they focus on taxes? Do they do tax loss harvesting? Are they cognizant of capital gain distributions?
    • Do they have a plan for volatility? Every investor should have a detailed plan for market volatility.

Diversification does not eliminate the risk of market loss. There is no guarantee an investing strategy will be successful. Past performance is not a guarantee of future results.

Krilogy® does not provide tax and legal advice. Krilogy® is affiliated with Krilogy Tax Services, LLC through certain common ownership interest by Krilogy partners. Krilogy Tax Services provides tax planning and preparation services for an additional cost to Krilogy Financial clients.

KEP Law, LLC d/b/a as Krilogy Law is a separate entity from Krilogy® that provides legal services that include estate and business planning. Services provided by Krilogy Law are separate and apart from the investment, financial planning and tax services provided by Krilogy® and Krilogy Tax Services, LLC.