Chapter 21:Questions To Ask Your Financial Advisor

The following is content from NAPFA’s “Pursuit of a Financial Advisor Field Guide.” Used with permission from NAPFA.

THE PURSUIT BEGINS
Finding qualified, independent financial advice should not be difficult, but it is for many hard-working Americans. With so many people claiming to be financial planners, financial advisors, financial counselors or wealth managers, how do you know when you’ve found someone who can really help you?

The National Association of Personal Financial Advisors (NAPFA), the country’s leading professional association of Fee-Only financial planners, is pleased to provide you with this field guide to assist you in your pursuit for a qualified, independent financial advisor.

The Pursuit of a Financial Advisor Field Guide is set up to help you with every aspect of your quest, including:

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Chapter 20: Important Questions

If you are concerned about how your financial matters are being handled, or you just want assurance that you are on the right track, you should seek a second opinion of your portfolio and an analysis of the arrangement you have with your financial advisor. You should consult a Fee-Only investment advisor—a full-time fiduciary who is not compensated by commissions.

Resources for finding a Fee-Only advisor are The National Association of Personal Financial Advisors (www.napfa.org), Vanguard Group (www.vanguard.com), The Garrett Planning Network (www.garrettplannning network.com), and ClientFirst Wealth Management (www.clientfirstwealthmanagement.com).

What if you already own a variable annuity?

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Chapter 19: Retirement Accounts

Most of the information in this book regarding diversification, fees, and working with a fiduciary can be applied to retirement accounts, such as 401(k)s, 403(b)s and IRAs. The following brief discussion identifies a few other things to keep in mind.

For many, retirement accounts represent a very large portion of their investment portfolio. Deferred taxation, as well as generous company- matching opportunities through which to acquire company stock, make vehicles such as 401(k)s very attractive.
There are, however, many rules governing retirement accounts that you and your financial advisor should be aware of. For instance, the rules regarding required minimum distributions (RMDs):

1. What if your spouse passes away and you inherit their 401(k)?

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Chapter 16: Separately-Managed Accounts

Separate accounts—also known as separately-managed accounts or “separates”—are segregated individual accounts with one or more investment managers. Unlike mutual funds, your investment is not co-mingled. Many investment managers participate in the separate account programs offered through major brokerage firms and other institutions.

It is expensive to access investment managers through a brokerage firm. A brokerage firm directs your money to one or more investment managers who manage a separate account for you. The investment manager charges an ongoing management fee, perhaps 0.75 percent. Then the brokerage firm charges what is known as a “wrap fee,” which is an ongoing fee that is wrapped around the investment manager’s fee (the folks who you are already paying to actually manage your money). The brokerage firm collects both fees each quarter, pays the investment manager, and keeps the rest.

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Chapter 15: Actively-Managed Mutual Funds

As we learned in Chapter 6, investment fees can make a huge difference in your long-term success. Management fees, sales charges and administrative fees are strong headwinds for all shareholders to overcome.

Actively-managed mutual funds may have annual expenses of 2.0 percent or more. This does not include friction costs—any commissions as well as price slippage—incurred when large buyers or sellers move a stock up or down when buying or selling stock.

However, if you read a fund’s prospectus, you are more unlikely to see the true annual expenses because such friction costs are not included. Also, you will not see an estimate of the short-term capital gains liability that you face from the “turnover,” or frequent buying and selling of securities in the fund’s portfolio. The following illustration depicts the annual turnover experienced in various categories of mutual funds.

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