The Investment Advisor Checklist
Thinking about hiring an investment advisor? Here's a checklist of questions to ask:
1. Are you a fiduciary?
A fiduciary puts your interests ahead of their own. Independent Registered Investment Advisor (RIAs) act as fiduciaries. Non-RIA advisors, who typically work for large brokerage firms, are held to a different standard--recommendations only need to be "suitable". They can also charge sales commissions and offer products that earn them higher fees.
Our answer: We serve as a fiduciary for you. The benefit — the confidence that comes from knowing we are on the same side of the table as you.
2. How do you get paid?
Ask if an advisor is "fee-only", meaning they don't receive compensation for selling products. Also, ask if they charge separately for financial plans or other services.
Our answer: We are fee-only advisors, with no additional charges for planning services. The benefit — our transparency answers all of your questions about fees.
3. What are the costs of the underlying investments?
Understand your "all-in" or total costs. Ask about costs embedded in the mutual funds, ETFs (exchange-traded funds), or separate account managers.
Our answer: We utilize low-cost index and market tracking funds. The fund expenses of a typical balanced portfolio are less than 0.20%. The benefit — lower costs lead to better returns over time.
4. What is your approach to wealth management?
Is the range of services offered mainly focused on investments, or is it more comprehensive?
- Do they look at your "big picture", taking into account your "outside" investments such as 401(k) accounts?
- Do they coordinate investment planning directly with your CPA and estate planning attorney?
- Do they rebalance the portfolio with a systematic approach, to ensure a consistent level of risk?
- Do they manage your cash & liquidity, initiating regular distributions for retired clients?
- Do they keep an eye on your real estate and mortgages, offering advice on refinancing?
- Do they offer advice on insurance without any incentive to sell unneeded policies?
- Do they help with college planning, including 529 college savings accounts?
- Do they offer charitable giving advice, including setting up donor advised funds?
- Do they implement tax loss harvesting strategies during down markets?
- Do they make sure that accounts are properly titled and that beneficiaries are updated?
Our answer: Yes to all of the above. Your Personal CFO Checklist enables us to coordinate all significant aspects of your finances. The benefit — you can channel your time and energy into productive and enjoyable pursuits knowing that the “money” part of your life is well-planned and on track.
5. What is your investment philosophy?
If an advisor doesn't have a disciplined investment philosophy, applied consistently over time, they are simply reacting to the day's events and hoping their predictions will work out.
Our answer: Our Value Added IndexingTM approach is disciplined, long-term philosophy that utilizes funds that closely track the markets' performance. The benefit, relative to traditional "active" stock-picking — superior long-term performance, broad diversification, consistency, low cost, and tax efficiency.
6. How do you put together financial plans?
Is the advisor using modern financial planning tools, or doing "back of the envelope" calculations?
Our answer: We use state-of-the-art "Monte Carlo" analysis to implement financial plans that offer a very high probability of achieving your specific goals. The benefit — peace of mind knowing that you can maintain your lifestyle during retirement years.
7. Will you take into account my Core Values?
Your Core Values are the priorities most important in your life — such as family, giving back, education, health and fitness, or the flexibility to work on your own terms.
Our answer: Core values affect how you define and prioritize your financial goals, and we incorporate these values in your financial plan. The benefit — you understand the trade-offs inherent in financial planning, and can make informed decisions based on what you value most.
8. Will my existing investments be sold, and what are the tax consequences?
Ask about the transition from your current portfolios. Will everything be sold, and if so, what are the potential capital gains taxes?
Our answer: We thoughtfully plan and discuss the transitions from "legacy" portfolios, often holding securities that are highly appreciated. The benefit — no surprises, and less to pay in taxes.
9. How often do you monitor and update my portfolio and financial plan?
Ask how often your portfolios and financial plan will be reviewed. Are financial plans updated, or put on a shelf when completed?
Our answer: As your client life circumstances change, so do your goals and objectives. We proactively monitor and update financial plans and investment portfolios accordingly. The benefit — peace of mind knowing that your financial plans and investment portfolios reflect your current situation.
Are you unhappy with answers you're getting to these questions? Please connect with us.
David Rappaport, CFP®
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.
The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only. Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.