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5 Questions to Ask Your Advisor before You Invest Another Dollar

Wells Fargo WFC -0.07% rolled out a new ad campaign in early May called “Re-established” where the banking giant seeks to do just that—re-establish trust with its customers following a series of scandals that undermined consumer confidence and tarnished the bank’s reputation. In a press release, Tim Sloan, Wells Fargo’s chief executive officer and president said the campaign marks a turning point by expressing how “we are fundamentally a different company today, and that it feels like a new day at Wells Fargo.” The campaign leans heavily on the company’s history and heritage as it acknowledges past issues, communicates the extent of changes made across the organization, and shows how the company is re-committing to its customers and their satisfaction.

But critics of the new campaign are skeptical that it will be enough to change consumer sentiment on the heels of practices that were allowed to flourish and go unchecked for years. In other words, will the “new day” messaging convince consumers that the banking giant is committed to taking all the necessary steps to prevent future issues or incidents that erode trust?

If trust is the foundation of a successful relationship, transparency is its cornerstone. Without transparency, it’s impossible to gain and maintain trust. This is particularly true when it comes to your financial relationships. As the financial services industry – and financial advice – continues to undergo significant change, it becomes more important for clients to know, not just assume, their advisors truly have their best interests at heart. However, investors may not know which questions to ask to gauge the level of transparency in an advisor-client relationship. Below are five questions every investor should ask their advisor. Any advisor worthy of your business should be able to answer each of these questions with confidence, conviction, and enthusiasm.

1. How do you get paid? What are your total fees?

Advisors should be unwavering and transparent when it comes to explaining their fee structure, so you fully understand how they are compensated. They should define which portion of the fee is paid out to the firm and which portion is paid out to the advisor, as well as any additional cost associated with specific products, technology partners or tailored services provided.

2. Are you a fiduciary? How do I know you have my best interest at heart?

Of course, your advisor should always answer, “Yes, I am a fiduciary,” but it’s the way they answer this question that you should examine closely. Pay attention to what safeguards the firm has in place to ensure your assets are protected from fraud and probe the advisor for details on how they’re making judgment calls with your money. In order to safeguard your assets, they should be held with reputable third-party custodians.  In addition, be sure to ask whether or not he or she has received disciplinary infractions both individually and as a firm.

3. How frequently do you communicate with your clients?

Does this advisor proactively send out rationale for buy/sell decisions? Proactive updates on the markets and economy? Information on other services that may benefit you, your business, or family members? Based on their answers, you should get an immediate feel for the importance the advisor places on communication and transparency.

For example, our firm sends out trade notifications that explain every buy and sell decision. In addition, we send out a weekly market commentary, timely updates on new services and capabilities, and a quarterly market outlook video, along with several education videos, investment strategy fact sheets, industry updates, helpful statistics, insight from our own advisors, informational whitepapers and more.

4. Do you have a well-defined investment management approach?

Disciplined investment strategies are the foundation of a solid investment management process. Is it a process-driven and time-tested approach managed by an in-house team of experienced professionals? The firm’s investment philosophy should be easily explained in simple, straightforward terms that make sense to you. Don’t let the advisor hide behind financial lingo.

5. What happens to my money if something happens to you?

This is a big one. A curve ball to most advisors. One that should give you a sense for whether they think of their firm as a lifestyle practice (that lives and dies with them) or a true business that stands the test of time. It’s a growing concern for the profession, which means it should be a growing concern for any advisor you choose. Are they simply saying they “have a plan” or are you getting appropriate detail on how the business will run in the event something might happen? Consistency is important in investment management. The high level of service you’ve come to expect should not change, and the same group of experts should continue to serve you for all of your wealth management and financial planning needs. Finally, can your advisor confidently state that he or she trusts the firm to continue to manage their own family’s wealth should something happen to them? If not, I probably don’t have to tell you it’s time to run, not walk away.

These questions highlight the extreme importance of doing your homework when choosing an advisor. Advisors should be able to directly answer your questions and provide detailed, documented proof of fees; fiduciary standards; a client bill of rights and code of ethics; and a succession solution. If your advisor cannot demonstrate value beyond a doubt and instill absolute confidence, then you deserve to find an advisor who can.

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