The answers to these questions drastically impact your financial plan
A strong relationship between client and advisor should be built on transparency and communication. Oftentimes, however, clients find their advisors unable to answer the most basic questions that are foundational to the success of their financial plan. In order to determine if your advisory relationship is right for you, ask your advisor these three questions…
1) What is my fee?
Many advisors use varying fee models that at first glance can seem somewhat hard to understand. However, your advisor should be able to clearly explain your fees to you without using confusing jargon. You should be able to ask about all-in costs, including whether an advisor’s fees are commission based, if there are hourly or flat fees, and what percentage of Assets Under Management they will receive.
At the very least, do you know the value you’re getting for the fees you pay? In other words, have you seen growth in your portfolio? Do you know what distribution strategies your advisor utilizes? How are these strategies strengthening your overall plan? If your advisor cannot answer these questions, it might be time to think about switching to someone whose value is obvious from the beginning.
At Storen Financial, we provide our recommendations on a flat fee approach in advisory relationships. We have an explanation on our fee structure and what this looks like versus a tiered fee model. (Click here to read this blog.)
2) Can you advise me on tax strategy?
Advisors who are not also tax accountants often avoid the legal gray area of advising on tax planning and strategy, since they do not have the certifications of a CPA, EA, or other tax accountant. They will often instead point you in the direction of your accountant for answers. For instance, you may want to know:
- What should I withhold in taxes from a distribution?
- Are there any changes to the tax law this year that could affect my withdrawal strategy?
- Does it make sense for me to do a Roth conversion this year? How much should I convert and still avoid a huge tax bill?
- Are tax-deferred options like a non-qualified annuity a good income stream for me?
- When should I start taking Social Security or Medicare? How will my monthly benefits/plan affect my tax bill?
An advisor who does not also provide tax preparation and planning would not have their hands on your tax return, and thus, they will have less face-to-face with the daily ins and outs of various tax strategies, potentially costing you money that could be saved. They will not be able to review your returns and project the tax impact your financial moves will have down the road. Thus, a qualified Financial Advisor who is also a Tax Accountant can review not just your financial plan but also your tax strategies on a regular basis. In effect they can work to save you money on taxes not just in the here and now, but also in the future by looking to see what’s coming next.
3) Are you a fiduciary advisor?
It might seem counterintuitive to ask your advisor if they’re a fiduciary, i.e. if they act in your best interest. After all, aren’t all advisors supposed to be doing that very thing? The answer should be yes, but in truth, not all advisors are held to the same legal standards as a fiduciary. In fact, fiduciaries follow a specific code of ethics and are held to stronger legal consequences. Fiduciaries must consider all aspects of your financial picture and explain why they recommend a specific product. Ask yourself, “Does it feel like my advisor is trying to sell me a product, and is their plan in my best interest?”
Storen Financial is a Fiduciary Advisory firm committed to providing investment and tax recommendations that aim to benefit you. Click here to learn more about the fiduciary standard.
As you ask your advisor these questions, remember to ask yourself this one very important question as well – Does your advisor stand out and provide value to you? When you need answers, a qualified advisor should be able to provide them. By starting with these three staple questions, you should be able to determine their qualifications and decide if any potential lack of knowledge may cost you in the future.
Have questions? Or interested in a consultation? Click here to contact us now. Or click here to learn more about our Financial Planning and Investment services.
Want to learn more?
Here are more resources to help answer your questions…
Three Reasons Why Your Adviser Won’t Talk Taxes – Kiplinger
How Financial Advisors Can (and Can’t) Help Their Clients with Tax Planning – LPL Financial
Blog by Ronnie Jackson, CFA® – Financial Advisor
Learn more about Ronnie and the rest of the Storen Financial team here.