When you’re thinking about hiring someone to work with you and your finances, it’s important to make sure it’s a good fit. Most financial planners want to have a no-obligations meeting with you first for this reason. However, this meeting is also an opportunity for you to ensure that you’ll be receiving the kind of service you expect. Use it to help you satisfy your questions about whether the adviser will be a good steward of your money.
It’s crucial to find a financial planner who you can trust with your portfolio. If you divide your money among several planners because you don’t trust any one of them, you’re not getting a good overview of your financial life. You might be incurring risks that an adviser, who’s able to view your entire portfolio holistically, would be able to spot quickly. It is difficult for an adviser to perform this type of assessment when your money has been portioned out to different people to manage. Being able to view the whole portfolio from one dashboard or report is much easier on you as well.
There are a number of questions you should ask to understand what your adviser’s financial views are and find out how they would approach handling your investments to help you trust them with the money you’ve worked so hard to save.
1. What services do they offer, and how do they work with their clients?
You want to know what services your adviser provides as well as those they do not. For example, some financial planners offer investment advice, but don’t implement the changes that they suggest. Their clients take care of those themselves.
Many advisers also offer financial planning, and you need to know what that entails. Do they help you set financial goals, or do they expect you to know ahead of time what you want? Will they assist with life transitions, such as being widowed, divorced or leaving your former company?
When it comes to investment management, know their philosophy. Most people have an accumulation phase where they’re saving money for later, and then a distribution phase where they tap into the funds they saved. Make sure your adviser has the experience you need.
CJM’s investment philosophy is to use cost-effective investments that allow you to grow with a strong stock market, but protect you on the downside too. We focus on the long-term and help our clients diversify so they don’t have all their eggs in one basket. We use our 40+ years of advisory experience to help younger clients maximize their accumulation and to provide our retirees cost-effective distributions from their portfolios.
Our financial planning team helps clients define their financial goals, which may include education planning as well as life transitions. We guide our clients toward saving and investing for retirement, as well as mitigating risks with insurance, tax and estate planning.
2. How often will the adviser be in touch with you?
At the very least, you’ll need to understand the basics of what’s going on with your portfolio as well as the markets. You’ll probably have questions from time to time, especially when the stock market starts fluctuating more than usual or seems to be on a downward spiral. While perfectly normal, the uncertainty can be very anxiety-inducing.
To ensure that you have the necessary knowledge and context, you’ll want someone who is ready and willing to speak with you. You want an adviser who explains whether you need to make any adjustments or decisions before you take an action that could jeopardize your financial security.
At CJM, we provide consistent communication for our clients through the following ways:
- Annual review meeting with a deep dive into your financial life and tracking progress toward your goals
- The ability to contact us at any time with your questions and concerns
- Regular articles, videos, market commentary, and other educational information
3. How do they charge fees?
Financial planners charge their clients in two major ways: fees and commissions. Fees are usually charged as a percentage of the assets under management (AUM).
When you pay fees as a percentage of AUM, your planner’s interest is aligned with yours. Both of you have the incentive to ensure that the portfolio grows appropriately given your risk tolerance.
By contrast, commissions are charged on each trade, typically as a fixed amount. In this situation, the planner is incentivized to make trades, not to optimize the portfolio. The more trades they make, the higher their income.
Fee-only advisers charge their clients based only on fees, with no commissions. A fee-based adviser may charge a combination of fees and commissions, depending on the investments.
CJM is a fee-only adviser.
4. What standard of care are they using for the investments: is the adviser a fiduciary?
While you may have heard this term before, you might not be entirely sure what it means or why having a fiduciary handle your portfolio is important.
The lowest standard for a financial adviser is to ensure that the investment is suitable for the client. However, a suitable investment may not necessarily be the best choice for the client.
An adviser who is a fiduciary must put the client’s needs first, before the firm’s needs or the adviser’s.
Consider two securities that are similar in style. One has a higher sales load because it pays a commission to the adviser, whereas the other one has no load. Under the suitability standard, the adviser can recommend the higher-cost investment as long as it’s suitable for the client. Under the fiduciary standard, however, the adviser is obliged to recommend the no-load investment because it is in the best interest of the client.
CJM acts as a fiduciary to all of our clients.
5. How do you choose investments for your clients?
Does the planner use what are known as passive investments, which are tied to an index and where the manager doesn’t make any decisions about what securities to hold? Or do they use active management, where the fund managers actively select companies to invest in?
Depending on the time period that you look at, you might see that active funds outperform or conversely, that passive funds do better. When the stock markets are doing well, it’s common for passive funds to look strong but when stocks are volatile or falling and not performing well in aggregate, active funds that are better at managing downside risk can outperform.
Who is selecting the investments? Does the firm have an expert analyst on staff, such as a Chartered Financial Analyst (CFA)? This is the gold standard for investment research. It’s also helpful for a firm to have an Investment Committee dedicated to the topic.
At CJM, we use a cost-effective combination of active and passive funds in our investment management. We have an Investment Committee led by our Portfolio Research Director, Kevin Donovan, CFA, who joined CJM in 2012. Prior to joining CJM, Kevin spent years in the financial industry analyzing a variety of companies across the globe, including internet and technology firms.
6. What makes this adviser different from other financial planners?
There are plenty of financial planners in the US, and a number of ways that they can differentiate themselves. Some criteria may be more important to you than others. From the way that the firm is structured, to the qualifications of the people handling your portfolio, to who owns the company, the answers can vary widely.
CJM prides itself on being a local, employee-owned and independent firm not affiliated with any broker-dealer. We take a team approach, holding a weekly planners meeting among all of the CFPs® and our CFA. Each of our clients works directly with two CFP® professionals, which demonstrates our commitment to excellence.
If you’re interviewing planners to determine who you feel comfortable with, make sure that you ask them all of these questions. If you’d like to schedule an appointment to come talk to us, please call 703-425-0700 or send us an email so that we can get to know each other.