Choosing a financial advisor can be a confusing and overwhelming, perhaps even intimidating process. The right advisor will serve as a partner to you and your family in keeping you on course to achieve your financial goals. The wrong one, on the other hand, could prove costly in time, money and robbing you of financial peace of mind.
How do you know if your financial advisor prioritizes your best interest ahead of lining his or her own pocket?
Wall Street Journal writer, Jason Zweig, has written an article containing 19 questions that you should ask your financial advisor. Below, I provide both the questions recommended by Zweig, and the Navigoe answers to those questions. In parenthesis after each question is the answer that Zweig recommends as the answer that you should seek in a financial planner.
1. Are you always a fiduciary, and will you state that in writing? (Yes.)
Yes, Navigoe was founded over 20 years ago as a fee-only, fiduciary firm. It is at the core of our firm’s principles, and how we believe financial advice should be delivered, with the client’s’ best interest always coming first.
2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? (No.)
Absolutely not. As a truly fee-only firm, 100% of our revenues are from client paid fees. Our clients always know exactly how much they are paying in fees, and how those fees are calculated.
3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors? (No.)
Never. Those contests are an abhorrent gimmick to incentivize “financial advisors” to make recommendations or sales of products that benefit the company, not the client.
4. Will you itemize all your fees and expenses in writing? (Yes.)
Absolutely. We are happy to provide a detailed accounting of fees at any time.
5. Are your fees negotiable? (Yes.)
Yes. For the sake of consistency our clients typically agree to one of three ongoing fee arrangements. Those arrangements are a flat annual retainer, a percent of investment assets or a combination of the two. In some cases, high levels of complexity require a larger fee, while low levels of complexity warrant a lower fee.
6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets? (Yes.)
Yes, we offer “one-off” planning services which are priced as a flat dollar amount. We will also consider an annual retainer fee for ongoing services. The most appropriate fee arrangement depends on the scope of services desired. In all cases, we begin with a no obligation introductory meeting at which we discuss the services desired, how we envision working together. All fees would be fully disclosed and agreed upon before moving forward.
7. Can you tell me about your conflicts of interest, orally and in writing? (Yes, and no adviser should deny having any conflicts.)
Yes, in the event that a conflicts of interest arises, we are very forthcoming and will discuss it with the client.
8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients? (No.)
No, we are a fee-only, fiduciary firm. Earning additional fees in this manner would be a violation of our fee-only, fiduciary status.
9. Do you pay referral fees to generate new clients? (No.)
No. The majority of our new clients come to us as referrals from current clients.
10. Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance? (Here the best answer depends on your needs as a client.)
Navigoe is a comprehensive wealth management/financial planning firm. Our process is designed to address all of the major areas of your financial life, including retirement, estate, and tax planning, as well as cash flow, insurance and charitable giving. We seek to understand what is most important to you before managing investments.
11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? (No.)
No, we are 100% fee-only.
12. What is your investment philosophy?
Navigoe’s methodology is based on decades of academically sound, thoroughly tested research that was developed, modified and improved upon by some of the world’s leading economists. Our approach to portfolio management focuses on market efficiency and asset allocation, not market timing or stock picking.
13. Do you believe in technical analysis or market timing? (No.)
No, most attempts at technical analysis or market timing result in worse returns, and more importantly, reduced likelihood of achieving your financial goals.
14. Do you believe you can beat the market? (No.)
Do we believe that we have a crystal ball (or know someone who does) that allows us to pick better stocks, shift into or out of particular sectors, asset classes, or countries at just the right time? No. Definitely not.
Do we believe that a diversified portfolio that includes asset classes such as small cap or value stocks can deliver returns above the large cap growth stocks commonly referred to as “the market” (i.e. S&P 500, Dow Jones Industrial Average)? Yes, not only do we believe that it can deliver higher returns, but the diversification reduces the risks associated with a portfolio concentrated in large US stocks.
15. How often do you trade? (As seldom as possible, ideally once or twice a year at most.)
We don’t have any incentive to trade clients accounts more frequently, so trades are only placed as needed for rebalancing or cash flow purposes. The frequency varies depending on the amount of market volatility and the client cash flows. Two to three times per year is typically the average.
16. How do you report investment performance? (After all expenses, compared to an average of highly similar assets that includes dividends or interest income, over the short and long term.)
Investment returns are reported after all expenses, which includes our fees, mutual fund expenses and any trading costs. Our client reports include a benchmark which is composed of indices allocated in a manner similar to each client’s portfolio. The online reporting software allows the client to view returns over any time period desired.
17. Which professional credentials do you have, and what are their requirements? (Among the best are CFA [Chartered Financial Analyst], CPA [Certified Public Accountant] and CFP, which all require rigorous study, continuing education and adherence to high ethical standards. Many other financial certifications are marketing tools masquerading as fancy diplomas on an adviser’s wall.)
We currently have four Certified Financial Planner™ Professionals on the team. In addition to experience and other factors, the CFP® designation is a requirement for our lead or senior Financial Navigators.
18. After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term? (If I told you anything over 3% to 4% annually, I’d be either naive or deceptive.)
Depending on the aggressiveness of the client’s portfolio, a reasonable return expectation after taxes and fees is 2% to 4% above inflation.
19. Who manages your money? (I do, and I invest in the same assets I recommend to clients.)
Navigoe partners, Scott Leonard and Eric Toya have all of their personal investments (as well as the assets of family members) managed by Navigoe and in the same manner in which we invest for clients (although more aggressively than many of our older or more conservative clients).