In our previous blog post, “Why Do Financial Advisors Change Firms?“, we explored in great depth WHY advisors change firms. Now that your advisor has decided to make the move, what’s next? In this post, our goal is to empower you to ask the very best questions so you will gain complete confidence in your decision.
So how should you approach the meeting with your advisor?
Perhaps you have been with your advisor for many years. Of course, you always want to approach the meeting with sincerity, respect, and a willingness to learn more. Before heading into the meeting with your advisor, educate yourself and ask good questions. Please take a few minutes to read our previous post to understand why advisors change.
Often times clients hesitate asking direct questions because they are not sure they will fully understand the answer. Financial products can be complex, and your advisor should be able to boil down the information to what is relevant to you so you can fully understand the most critical details. If the answers to these questions do not make sense to you, then you should pause until you are 100% comfortable with the answers.
When you go in for the meeting, always ask the following questions:
1. With your decision to change firms, how will my family be better off?
The advisor’s answer to this question should not be “We will have better investment options available.” Major financial firms have access to dozens upon dozens of high quality/low-cost funds and investment choices. I assure you that “better investment options” is not the reason the advisor changes firms. If your advisor gives you the answer “better investment options”, you should ask why you were not in the best investment vehicles in the first place.
2. How will my “all-in” fees change as a result of your move?
This question is critical because the fees you pay have a direct impact on the performance of your portfolio. Many studies have shown the there is a direct correlation between high expenses and underperformance over time. Make sure you understand the difference between embedded mutual fund fees that are not transparent, and advisory fees that are typically assessed quarterly and are clear.
Sometimes advisors use a firm change as an opportunity to convert their business from commission-based products (where the client may have paid an up-front load years ago) to a fee-based, or advisory, account. While this change to advisory is often in the client’s best interest, this change can sometimes result in higher fees for you. This is your money, so you deserve to know if your “all-in” fees go up or down because of the change, and you deserve to see a fee comparison in print. If your fees are going up, then you should ask what services you will receive going forward that you have not been given in the past.
3. Has my portfolio performed better than the benchmark over time?
Ask your advisor to prepare this information for you in advance of your meeting date so that you have a chance to review it before your scheduled meeting. If you have underperformed, why? Many studies have documented the underperformance of high-expense and high-turnover funds. If your portfolio has underperformed, there may be a very good reason. However, the reason should be clearly stated by your advisor and understood by you. You deserve a portfolio built on academic research and a careful understanding of your unique circumstances.