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7 Key Questions Every Financial Advisor Must Be Able To Answer Before You Hire Them To Manage Your Money

Your financial freedom, security and peace of mind could be at stake!

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It is very rare for a financial advisor to be able to answer yes to ALL 7 of these questions!

It’s shocking but true.

Every day, affluent boomers and business owners hire financial advisors they should not be hiring – individuals who quite often do not have the qualifications they need to manage their money effectively.  Charge you a lot more than they should, and provide you with sub-par advice that in the end does NOTHING to ensure you achieve financial freedom, security or peace of mind.

Financial advice is more than just investing your money. Financial advice should encompass a holistic approach to managing your wealth, which would include advice on all your investment assets that affect your financial well-being, such as real estate, trust structures and your business(s).

There is too much at stake to trust your money to just any advisor. You need to have the right kind of advisor working for you – particularly in today’s challenging economy. And finding a financial advisor who can rise up to meet the challenges can be extremely difficult. There are plenty of financial advisors – many of whom are quite adept at managing your money.  But here is the undeniable truth:

In today’s uncertain economic landscape, your money cannot afford the risk of poor investment advice that does not incorporate a holistic approach to managing your wealth!

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I realize that you might not believe that right now but think about it for a minute. Be honest with yourself, can you answer these 8 questions?

  1. What is the combined average annual return on all my investments this past year over the past three, five or ten years?
  2. Are the investment returns good enough to help me reach my goals?
  3. Am I taking on more risk than I need to or should?
  4. Am I paying too much tax on my investment income?
  5. Is the investment advice I am getting really free?
  6. How much am I paying in fees and how are those fees affecting my investment returns?
  7. What value am I really getting for the fees I am paying?
  8. Have I saved enough?

Then ask yourself this question.  Is my financial advisor offering me the following services?

  1. Comprehensive Reporting:
  2. A Personal Investment Plan
  3. True Global Portfolio Diversification
  4. Portfolio Diversification By Industry
  5. Portfolio Diversification By Investment Style: Growth, Value And Alpha
  6. Portfolio Tax Deferral On Non-Registered Accounts
  7. Portfolios Risk Mitigation
  8. Regular Portfolio Rebalancing
  9. Dynamic Currency Hedging
  10. A Team Of Professional Portfolio Managers
  11. A Dedicated Investment Management Team Managing The Portfolio Managers
  12. Portfolio Manager Review And Selection
  13. Custom Portfolio Design
  14. Investment Fee Transparency
  15. A Financial Plan
  16. An Estate Plan

If you’re like far too many affluent boomers and business owners, the likely answer is you do not have a clear answer to many of these questions. Here is the problem:

Hire the wrong financial advisor to manage your money and it’s almost certain that you will not achieve your desired retirement goals.  In many cases you will fall far short of your goals. And that’s just WRONG because money’s hard to save and you can’t afford to see it mishandled on investment advice that is not part of a holistic approach to wealth accumulation.

If you’re like most baby boomers, you have managed to build up a sizable nest egg. However the journey building that nest-egg may have been somewhat haphazard. You may have multiple investment accounts with multiple advisors. You may have a rough idea of how much you have saved, but it’s a challenge collecting all those investment statements to get a clear picture. And when you have everything together you still do not have a good handle on how well all your investments are doing.

As you know getting investment advice has never seemed easier.  You now have access to specialty investment channels on TV, websites and newspapers all dishing out free inconsistent advice! On top of that you may have multiple advisors who do not necessarily communicate with each other to get a full understanding of your overall investment strategy and financial goals. As a result they may offer you conflicting and sometimes incomplete investment advice which can result in you making investment decisions that happen in isolation of your overall investment objectives and needs.

The result is a collection of investments that are fragmented, expensive, not very tax efficient, not doing as well as you expect and may even be too risky for you. This may result in missed opportunities unnecessary expense, unforeseen tax liability and at worst catastrophic consequences. At minimum you do not know where you stand!

I am going to give you the inside-scoop on what we think you should do when you meet with a financial advisor eager to manage your hard earned wealth – to make sure you hire only the best of the best. Which is exactly what it takes to provide integrated investment and wealth planning advice that will enable you to achieve your lifetime financial goals; for you, your family, hairs and cherished causes.  You’ll be armed with the knowledge you will need to make the “right” decision.

In just a minute, I’m going to reveal the 7 Key Questions, but first let me answer a couple of questions that are probably on your mind:

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Who Are You And Why Are You Revealing This Information?

My name is Adrian Spitters.  I am a Wealth Advisor with a leading Canadian wealth management firm with extensive experience in integrated family wealth planning. I have been in business for over 28 years and started off as a mutual fund advisor. Like many financial advisors I concentrated on advising my clients on their retirement savings at the exclusion of their overall wellbeing because quite frankly I only got paid when someone invested money with me. That changed 17 years ago.

I grew up on a dairy farm on Nicomen Island ½ hour east of Mission City. I began my career offering investment advice to my natural market family, relatives and friends operating dairy and poultry farms as well as family businesses connected to the ag-community, as a result I became aware of the issues of not having an integrated family wealth plan in place to transition family assets and wealth to the next generation.

But it did not resonate with me until 17 years ago when my father passed away. You see I was just giving investment advice so even though I was aware of the issues facing farm and business families, it was not my role to advise on aspects of my clients wealth that was outside of my core competency of investment advice.

That changed when my father passed away. My father like many farmers and business owners kept the family finances private. My brothers and I were not involved in my father’s estate planning.  All I know is my dad telling us that he wanted the farm to stay in the family and that he had arranged to make sure that happened and that we would all be fairly treated in the will.

So my father’s estate plan was a complete mystery to me until he passed away 17 years ago. My middle brother and I were appointed executors of my father’s estate.  We soon learned of HORROR that was my father’s estate plan. When my youngest brother was in grade 11, my father had a heart attack, one of many over his lifetime. To help my father out, he quit school to work on the family farm. Soon after my brother started working on the farm, my father prepared his will and a basic estate plan with instructions to his accountant and lawyer that he wanted to keep the farm in the family. Unfortunately for the rest of us there was no formal discussions about how this transition would take place and how to treat the rest of us not working on the farm in a fair manner. When my father passed away, my youngest brother inherited the farm, all that was left of my father’s personal estate was his house that was split five ways, and to rub salt into the wound my youngest brother also received 1/5th of this, which lead to family discord among my brothers due to unequal treatment. 17 years later my brother lost the farm due to bankruptcy. He was not prepared to take over the farm because my father maintained management and financial control of the farm until his death.

This is very common among farmers and business owners even though they assume that their children will take over their farm or business, they do not want to let go of the day-to-day management and financial control of their businesses, and therefore do not effectively prepare their children to take over the farm or family business, when the time comes.  This type of unfair treatment is not isolated to business and farm families but families of substantial wealth face the same issues.

This experience caused me to rethink my role in my client’s lives. Today, I work as a Wealth Advisor with a leading Canadian wealth management firm with extensive experience in integrated family wealth planning. It has become my mission to help affluent families with complicate financial assets, business owners and farm families avoid the mistake made by my father.

I am revealing this information that a lot of financial advisors don’t want you to know for two main reasons.

REASON #1: If you hire or are working with one of the many financial advisors I will describe to you shortly, you are working with an advisor that does not see the big financial picture in your life and only will advise within their core competency. They will shy away from giving you advice or directing you to someone that can give you advice on other areas of your financial life that is critically important to your financial well-being.

REASON #2: I HATE seeing families getting incomplete advice.  If you HIRE or are working with one of the advisors I will describe below, you will need to work with additional advisors to get a complete picture of your overall wealth and coordinating the advice from multiple advisors can be a challenge.

When you work with multiple advisors to provide advice on the various aspects of your financial life you will find that they may not necessarily communicate with each other to get a full understanding of your overall investment strategy and financial goals. As a result they may offer you conflicting and sometimes incomplete investment, tax, trust, business succession and estate planning advice, which can result in you making financial decisions that happen in isolation of your overall investment objectives and financial needs. The result is a collection of investments that are fragmented, expensive, not very tax efficient, not doing as well as you expect and may even be too risky for you. And not being part of a bigger integrated wealth plan, this may result in missed opportunities unnecessary expense, unforeseen tax liability and at worst catastrophic consequences. At minimum you do not know where you stand and you do not have a clear path to getting there!

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Aren’t All Financial Advisors The Same?

There is a wide range of differences between the expertise and services offered by the various types of financial advisors I will list below.  Not knowing what they are and hiring the wrong financial advisor can be harmful to your financial health. A financial advisor is a professional who renders financial services to clients. The terms such as financial adviser and financial planner are general terms or job titles used by investment professionals and do not denote any specific designations.

When evaluating investment advisors, selecting the advisor with the lowest fee possible may not always be the most prudent decision.

A wealth advisor or financial planner offering the services of a private money management services can offer a full range of services for the same fee you may already be paying your stock broker or mutual fund advisor who just provides basic investment advice.

When the fees charged are embedded (hidden) as they are in many mutual funds then the investor can mistakenly believe that the service is free.

When the fee is charged separately or is disclosed and all the investor is receiving is investment advice, then for many of them, in their mind the advice given has become a commodity.  The only difference between the advice given by the financial institutions, money managers and financial advisors is that the fee is charged either directly or indirectly.

One way to distinguish between financial advisors is how they earn their fees and the level of service and value they provide.

Advisors are paid for their services in three ways –

  1. Commissions,
  2. Fee-based – Combination of commission and fee only and
  3. Fees only
  1. Stock brokers and mutual fund salespeople make money when they sell a stock or a fund.
    • Stock brokers receive a transaction fee or a flat fee ranging from .5% – 1% fee based on account size for holding the securities (this does not include mutual fund management fees or ETF management fees). This fee gets you stock picking advice and the personal advice of the stock broker – who may have another 400 to 800 clients just like you.
    • The fees for mutual funds are called loads and are charged:
      • when you buy a fund (front-end load 0% – 5%),
      • when you sell a fund (back-end load up to 5.5% if sold in the first year and declining thereafter) or
      • on an annual basis (a flat fee based on Assets Under Management (AUM) These fees can range from 1% to 2.75% depending on account size for the advisor and manager portion excluding custody fees and GST which are extra.

Mutual fund management fees are in addition to the advisor fee. They are usually embedded and can add an additional 1.5% to the total fee. Some mutual funds also offer financial planning and estate planning advice without additional charge.

  1. Fee-based advisors may receive both fees and commissions. They will charge fees based on Assets Under Management (AUM) that can range from 0.5% to 1.25% for their financial/investment planning services and receive commissions for the products they recommend as well. Total management fees can thus range from 1.50% to as high as 3.5% when you combine both investment advisor fees and mutual fund manager fees.
  1. Fee only advisors are paid directly by their clients and do not receive commissions or fees based on Assets Under Management. This fee can be a flat retainer fee, or an hourly rate. The hourly or retainer fee can vary widely based on advisor experience and complexity of a client’s financial affairs.

Some people ask “Why should I pay you for the services my commission advisor does for free?” They believe that commission advisors are not being paid by the client.

Recall that the advisor is indeed being compensated; either by having the mutual fund company deduct the fee from the investments or by charging a fee directly. Even though you aren’t cutting your investment advisor a monthly or annual cheque, usually their fee is being deducted from your investments, if they work on a commission basis.

One important factor to consider is that for the same fee (or commission) that you pay a stock broker or mutual fund representative to buy and sell stocks and funds, you can receive comprehensive, investment and wealth planning from a full service Wealth Advisor.

The fee you pay either embedded of visible should be based on the value you receive.  If the advice given is just pure investment advice then the fee should be lower.  If the advice includes, an investment policy statement, financial planning, retirement planning, estate planning, tax planning or integrated wealth management, the fee should reflect the level of additional value received from the services provided.

A fee-based or fee-only advisor will have access to a wide range of additional services that can add significant value.  The fee they charge should reflect the level of services they provide and value you receive from these services.

These services may start with a personalized risk tolerance analysis of your investments– are you willing to gamble your assets to achieve a greater return, or are you looking for a SAFE harbour for your hard-earned assets? This should be the minimum level of service provided or be part of an integrated wealth management service. Or somewhere in between. You decide.

In consultation, these professionals will then design a comprehensive wealth management plan that will suggest ways to maximize investment growth reduce risk and minimize taxes.

The Bottom Line?

When evaluating investment advisors, selecting the advisor with the lowest fee may not always the most prudent decision.

To get full value for the fees you are paying you should hire a wealth advisor or financial planner that offers full integrated wealth management services.

Wealth advisors offer, or have access to investment management services that have a disciplined asset allocation process to designing a customized asset mix designed specifically for your unique needs.

Some wealth advisors offer or have access to private money managers that focus on maximizing your after-tax rate of return. Taxes are probably one of the largest expenditures that you will make over your lifetime.

Check your investment management fees.  If you are already paying the standard mutual fund management fee of between 2% – 2.75% embedded fee and are just getting investment advice you can have access to integrated wealth management services of a Wealth Advisor or financial planner who offers, or has access to integrated wealth management services.

Remember to look at value received and not just the absolute cost.

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The main groups of investment professionals who may use the term financial advisor are: stock brokers, investment advisers, accountants, lawyers, insurance agents and financial planners.

Financial Planner

“A financial planner is a practicing professional who prepares financial plans for people covering various aspects of personal finance which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).”

Wikipedia

Stockbroker

“A stockbroker is a regulated professional individual, usually associated with a brokerage firm or broker-dealer, who buys and sells shares and other securities for both retail and institutional clients, through a stock exchange or over the counter, in return for a fee or commission. Stockbrokers are known by numerous professional designations, depending on the license they hold, the type of securities they sell, or the services they provide.”

Wikipedia

Investment Advisor

“An Investment advisor is any person that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications.”

Investopedia

Mutual Fund Sales Representative

“A Mutual Fund Sales Representative is employed throughout the financial services industry by mutual fund dealers and independent financial planning firms. Personal Banking Representatives and many Insurance Sales Agents may also become licensed to sell mutual funds. As with Investment Advisors, Unlike Investment Advisors, who are licensed to deal in stocks and bonds in addition to mutual funds, Mutual Fund Sales Representative are only licensed to advise on and sell mutual fund investment products.”

Canadian Securities Institute

Portfolio Manager

“A portfolio manager is either a person who makes investment decisions using money other people have placed under his or her control or a person who manages a financial institution’s asset and liability (loan and deposit) portfolios. On the investments side, they work with a team of analysts and researchers, and are ultimately responsible for establishing an investment strategy, selecting appropriate investments and allocating each investment properly for a fund- or asset-management vehicle.”

Wikipedia

Insurance Advisor

“An Insurance advisor sells insurance policies. They receive commissions for the policies that they sell. Independent insurance agents, like independent financial advisors, are able to provide their clients with a wider array of options when it comes to insurance products than captive insurance advisors. They take into account the different coverage needs of the client, and select a policy that provides the necessary coverage at a reasonable price. Many Insurance advisors also sell insurance based segregated funds, which are mutual funds with an insurance component offering a guaranteed upon death of the segregated fund holder. Some Insurance advisors are dual licenced and also sell mutual funds. Because of the insurance component, segregated funds tend to have a higher management fee than mutual funds so insurance advisors offer mutual funds as a lower cost option to their clients who do not need the additional insurance coverage offered through segregated funds and just money management.”

Investopedia

Wealth Advisor

“A WEALTH ADVISOR is member of a team of high-level professional service team that combines financial/investment advice, accounting/tax services, retirement planning and legal/estate planning for one fee. Clients work with a single wealth advisor who coordinates input from financial experts and can include coordinating advice from the client’s own attorney, accountants and insurance agent. Some wealth advisors also provide advice on philanthropic activities.”

Investopedia

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BREAKING DOWN ‘Wealth Management’

“In general, wealth management is more than just investment advice, as it can encompass all parts of a person’s financial life. The idea is that rather than trying to make sense of advice from a series of professionals, high net worth individuals and business owners benefit from a holistic approach in which a single advisor coordinates all the services needed to manage their money and plan for their own and/or their family’s current and future needs.

The wealth advisor starts by developing a plan that will maintain and increase the client’s wealth based on that individual’s financial situation, goals and comfort level with risk. After the original plan is developed, the advisor meets regularly with clients to update goals, review and rebalance the financial portfolio, investigate whether additional services are needed and ideally, follow clients throughout their life.

Wealth advisors are often part of a wealth-management firm, with access to a team of in-house experts and services, but may also be solo practitioners who rely on their own network of independent experts. Management fees and range of services vary widely and should be researched thoroughly before engaging a wealth advisor.”

Investopedia

Okay, now that you know the various definitions for Financial Advisors, who I am and why I’m doing this, let’s talk about the 7 Key Questions Every Financial Advisor MUST Be Able To Answer Before You Hire Them To Manage Your Money so that you can achieve financial freedom, security and peace of mind!

Now… you may be expecting a series of questions like:

“Do you have any samples of the types of portfolios you recommend?”

“What are your fees?”

“Can you show me testimonials?”

“How are your fees charged?”

“What is your track record?”

And all those are good questions. Any financial advisor worth their salt will have ready responses in place. As someone who has been there in the trenches with the best of them, let me lay on you some queries the average financial advisor ISN’T expecting… which will enable you to see who’s ready for prime time in advising you on your money and family wealth.

Ok here we go…

To View The 7 Key Questions Every Financial Advisor Must Be Able To Answer Before You Hire Them To Manage Your Money

About the Author:

Adrian Spitters is an avid writer and blogger who recognizes the need to publish on issues relating to the retiring business owner and farmer, by offering information and insight to help them transition into retirement and create sustainable multi-generational family wealth.

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