The Smart Questions Clients Ask

How much will your financial advisory services cost me, all-in?

What will the additional trading costs be, if any, to implement your strategy?

What are the internal expenses of the funds you use, if any?

What might the taxes on gains or income look like, on average?

Are there costs associated with our transactions that I may not see but will have an effect on my net returns?

These are the questions we get from the smartest people who inquire at our firm, either early in the process or sometime down the line before they hire us. Not everyone knows to ask these questions, so if they don’t we will bring up the answers anyway.

Smart investors don’t obsess over performance track records, they ask about costs and conflicts. They know that any advisor can show them a proposed portfolio filled with funds that “beat the benchmark” over the last few years, but that this is actually the least important aspect of the decision.

According to S&P Dow Jones Indices’ SPIVA persistence scorecard, past performance is literally irrelevant. Of the 706 domestic stock mutual funds that were in the top quartile of performance in September 2010, only 1% of them were still in the top quartile for the five years ending September 2014. One percent. If you’re paying high costs for someone’s past track record, you might want to seriously rethink that. If your first question of an advisor concerns their proposed portfolio’s track record, you’re going to get exactly what you’re asking for – the wrong information.

One of the things I’ve learned from Howard Marks, who is not a financial advisor but a money manager, is that the key to working for investors is “Tell people what you’re going to do, and then do it.” We’ve organized the practice around this mantra, to the best of our ability. Part of this includes offering transparency around costs – both explicit costs and the indirect ones that sneak up on you.

But there are many players in my industry who gloss over this part. They inherit clients from the banking side of their firm or get referrals from friends or play golf at the right country club and, in all the schmoozing and power-pointing back and forth, they are somehow able to close business without even getting into this stuff. That’s worked for a long time, but it’s not going to anymore. The web has busted this wide open. As Johnny Cash sang, “You can run on for a long time…”

If your financial advisor is not able to give you straight forward answers to these smart questions, it’s up to you to decide whether or not that matters. I understand that people do business with people they like, and that prestigious brands have curb appeal.

But we live in an era of incredible choice. It wouldn’t be the worst thing on earth to take advantage of that fact.

Two brand new posts worth reading on the topic:

Questions to Ask a Prospective Financial Adviser (Carl Richards)

Is your financial advisor acting as your fiduciary? (Kris Venne)

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. bitcoin evolution reviews commented on Sep 23

    … [Trackback]

    […] Find More here on that Topic: thereformedbroker.com/2015/03/03/the-smart-questions-clients-ask/ […]

  2. bitcoin era commented on Oct 01

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2015/03/03/the-smart-questions-clients-ask/ […]

  3. fun88 commented on Oct 13

    … [Trackback]

    […] Find More here to that Topic: thereformedbroker.com/2015/03/03/the-smart-questions-clients-ask/ […]

  4. buy dumps with pin online commented on Oct 16

    … [Trackback]

    […] Here you will find 58536 more Info on that Topic: thereformedbroker.com/2015/03/03/the-smart-questions-clients-ask/ […]

  5. orangeville real estate agents commented on Oct 16

    … [Trackback]

    […] Find More on to that Topic: thereformedbroker.com/2015/03/03/the-smart-questions-clients-ask/ […]

  6. diamond painting commented on Dec 16

    … [Trackback]

    […] Read More Information here on that Topic: thereformedbroker.com/2015/03/03/the-smart-questions-clients-ask/ […]