Whether you work with an investment advisor, or are considering hiring one, be sure to ask questions to be an active partner in your money management. Asking thoughtful questions shows advisors you are informed, inquisitive and engaged in the success of your planning.
Deciding which questions to ask can feel daunting or potentially embarrassing if you feel like you don’t know what to ask. Don’t worry about investment jargon. Just dive in with this list of savvy questions to spur good conversation:
If you’re hoping to hire an investment advisor, you might ask:
- How do you get paid? Fees depend on the type of advisor you hire. Investment advisors usually charge an annual fee based on the dollar value of your assets being managed. For example, if your account balance is $750,000, you might be charged something in the ballpark of a 1% all-in annual fee, which may include financial advice and investment management, providing access to your personal advisor at any time. In contrast, stockbrokers and online trading sites charge commissions which are transaction fees for purchases and sales of securities. Commissions vary depending on the type of broker, from a few dollars per trade for discount brokers to 1-2% of assets for full- service stockbrokers. Not all advisors are fiduciaries – those required to act in your best interest – and some may not want to provide that level of care. You want to understand exactly how your advisor is compensated and if they are acting as a fiduciary.
- What types of assets do you invest in for clients? Managers vary in their investment methods. Some managers invest in stocks and bonds primarily, where others focus on mutual funds or an array of other diverse assets like real estate, commodities, currencies and more. You’ll want to have a good understanding of what type of investing your manager specializes in and how it would work for you.
- How do I know my investment plan is working? What does success look like for me? The answer to this question will vary depending on an investor’s individual goals and needs. Are you achieving enough growth in your investments to pay for college, vacation or a charitable gift you’ve been working toward? Does the level of risk in your investment portfolio allow you to sleep at night? If you’re already in retirement, you might ask about your investment income stream – is it meeting your income needs consistently?
- How will we communicate? Most managers welcome a phone call or email at any time. Some will schedule an annual face-to-face meeting to hear how you’re doing and review portfolio objectives and performance. Managers often provide online access to allow you to view your account and will send you quarterly or monthly statements to provide an update on your assets. Investors can also connect with their investment manager online using social media to read the latest news and investment pieces they’ve published.
- What are our expectations of each other? Individual expectations will vary, but, in general, investors should expect advisors to listen well and understand their financial needs, know what’s happening in the market, manage their assets prudently according to agreed-upon objectives, and communicate clearly and honestly. Advisors will expect clients to communicate key information about their financial picture, to provide updates on any changes in their situation, understand performance benchmarks, and work collaboratively as partners. You will want to be clear on expectations to set your relationship up for success.
If you already have an investment advisor and are discussing your investments, you might ask:
- Would I benefit from having my assets in a trust? If so, what are the benefits? Trusts come in many forms: revocable, irrevocable, testamentary, special needs, charitable remainder trusts and more. Each has a specific purpose designed to provide a particular type of protection to trust beneficiaries. Some trusts can help beneficiaries avoid the probate process which can be costly and less private, where others can help reduce taxes for future beneficiaries. Advisors work with trust professionals who can walk you through trust scenarios suitable for your situation.
- Can you help me minimize taxes? Being tax savvy is an important part of prudent investment management. Your investment advisor will often collaborate with your tax advisor, a collaboration that can yield many benefits, including guidance on tax-efficient investments and minimizing capital gains for your specific situation.
- If I’m interested in making charitable gifts, are certain assets or accounts more advantageous for giving? Charitable gifts can be made in several forms – appreciated securities and cash given outright, through Donor-Advised Funds, as bequests, or to designated beneficiaries. Investors can make use of Qualified Charitable Distributions from their Individual Retirement Accounts once they reach age 70 ½. They can also make gifts of cash and securities from non-retirement accounts; these gifts may be itemized and serve as deductions on the income tax return, depending on each person’s specific situation. Ask an advisor to review your assets and discuss which to tap for charitable gifts.
- Will I have enough money to last my whole life? Am I going to be okay? Advisors, like Covenant Trust, understand this is a worry for many people and are there to make sure your assets are prudently and efficiently invested for your future and wellbeing. Advisors also have tools available to help you envision scenarios factoring in what age you think you might live to be, your income, expenses, and charitable giving. You can adjust each factor and see the impact of these planned inflows and outflows of cash and securities. The complex process of budgeting for an unknown future becomes far less overwhelming with the help of careful analysis and a caring and knowledgeable advisor.
Meeting and talking with an advisor can be a great learning opportunity for everyone involved. It’s always beneficial (and more enjoyable) to build a good working relationship as you partner together to strengthen your financial future. Don’t hesitate to ask questions. You’ll understand and learn more than you might think. Financial literacy is available to everyone – you just need to ask a few questions.
Disclaimer
The information provided is general in nature, educational and is not intended as either tax or legal advice. Consult your personal tax and/or legal advisor for specific information. Covenant Trust is incorporated in the State of Illinois and is supervised by the Illinois Department of Financial and Professional Regulation. Covenant Trust accounts are not federally insured by any government agency. Clients may lose principal as a result of investment losses.