Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series. On Fridays, TaxConnections presents questions often asked of a Financial Planner.
Ask Ed: Financial Planning Questions And Answers
Question: Other than receiving my permission to have your custodian debit my investment account for your fee, do you take custody of, or will you have access to my assets?
Answer: Allowing an advisor to debit your investment account for his/her fee is standard practice in the financial services industry; however, that should be the only direct access for withdrawals that the advisor should have. You should avoid permitting an advisor to have physical “custody of your investments assets” or the ability to make withdrawals or transfers from your account(s) without express specific prior consent to each such withdrawal or transfer. Generally, Fee-Only advisors will not expose their clients to these “custody” type situations. When you use a Fee-Only advisor, an unaffiliated brokerage firm will usually maintain physical custody of your investment assets.
Question: If you were to provide me ongoing investment advisory services, do you require ” discretionary “trading authority over my investment accounts?
Answer: If you grant an advisor ” discretionary” trading authority over your investment account, the advisor can place orders to either buy or sell securities without consulting with you ahead of time. If you have not granted your advisor “discretionary” trading authority, the advisor must obtain your approval prior to making any transactions in your account. If you are going to grant discretionary authority to your advisor, it is advisable to have a written document setting forth the terms and conditions of the discretionary engagement ( usually set forth in an Investment Management Agreement). Make certain this is in place prior to the first investment. Additionally, you should receive a signed, written document setting forth the investment parameters for the accounts to be managed (i.e. investment objectives, percentage allocations, restrictions, etc.), often referred to as an investment Policy Statement. Of course, you should always continue to monitor the activity within your investment account to make sure that transactions are within the parameters of an agreed-upon investment policy.
Question: As a Financial Advisor, do you have many clients like me?
Answer: You are more likely to have an excellent experience with your advisor if he/she works with people of your asset level and concerns.
(How To Select A Financial Advisor – Ed Mahaffy)
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