Do You Know The Seven Questions to Ask?

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GCW Capital Group is comprised of a team of financial, fiduciary advisors.

That statement may raise a question or two in your mind, wondering what that extra word, "fiduciary" means, or why it even matters?

According to life-and-business strategist and author, Tony Robbins, if you are trusting any financial advisor with your money there are actually seven key questions you should be asking.

With acknowledgment of Robbins' "Power Report" Newsletter, here is an article about those seven questions adapted from his monthly publication. If after reading you want to know more, give us a call and let's talk about planning your financial future.

"Unless we take the precaution of learning how the financial advisor system works against us, and how to counter it, we are part of a recipe for financial disaster. So, how do you start? By making sure to ask these seven questions of a financial adviser, or any adviser, you are considering:"

1. Are you a registered investment adviser?

If the answer is no, this adviser is a broker. Smile sweetly and say good-bye. If the answer is yes, he or she is required by law to be a fiduciary. But you still need to figure out if this fiduciary is wearing one hat or two. That’s because Its not enough that your financial adviser is an independent RIA. You need to be careful that the RIA is not also a broker.

You heard that right. In a strangely allowable arrangement, an RIA can be both a broker and a fiduciary in a process called “dual registration.” When someone is “dually registered,” at one moment they play the part of an unbiased adviser, reassuring you that they abide by the fiduciary standard and can provide you with conflict-free advice for a fee. But they can switch hats and act as a broker, earning commissions or kickbacks by selling you specific products. When they’re playing this broker role, they no longer have to abide by the fiduciary standard. In other words, they’re sometimes obliged to serve your best interests and sometimes not. How warped is that? These arrangements are perhaps the most dangerous for consumers as it creates immense confusion.

2. Are you or your firm affiliated with a broker-dealer?

If the answer is yes, you’re dealing with someone who can act as a broker and usually has an incentive to steer you to specific investments. One easy way to figure this out is to glance at the bottom of the adviser’s website or business card and see if there’s a sentence like this: “Securities offered through [adviser’s company name], member FINRA and SIPC.” This refers to the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation, respectively. If you see these words, it means he or she can act as a broker. If so, run. Run for your life!

3. Does your firm offer proprietary mutual funds or separately managed accounts?

You want the answer to be an emphatic “no.” If the answer is yes, then watch your wallet. It probably means they’re looking to generate additional revenues by steering you into these products that are highly profitable for them (but probably not for you).

4. Do you or your firm receive any third-party compensation for recommending particular investments?

This is the ultimate question you want answered. Why? Because you need to know that your adviser has no incentive to recommend products that will shower him or her with commissions, kickbacks, consulting fees, trips, or other goodies.

5. What’s your philosophy when it comes to investing?

This will help you to understand whether or not the adviser believes that he or she can beat the market by picking individual stocks or actively managed funds.

6. What financial planning services do you offer beyond investment strategy and portfolio management?

Investment help may be all you need, depending on your stage of life. But as you grow older and/or you become more wealthy with various holdings to manage, things often become more complex financially. For example, you may need to deal with saving for a child’s college education, retirement planning, handling your vested stock options, or estate planning. Most advisers have limited capabilities once they venture beyond investing. In fact, most aren’t legally allowed to offer tax advice due to their broker status. Ideally you want an adviser who can bring tools for tax efficiency in all aspects of your planning — from investment planning to business planning to estate planning.

7. Where will my money be held?

A fiduciary adviser should always use a third-party custodian to hold your funds. For example, Fidelity, Schwab, and TD Ameritrade all have custodial arms that will keep your money in a secure environment. You then sign a limited power of attorney that gives the adviser the right to manage the money but never to make withdrawals. The good news about this arrangement is that if you ever want to fire your adviser, you don’t have to move your accounts. You can simply hire a new adviser who can take over managing your accounts without missing a beat. This custodial system also protects you from the danger of getting fleeced by a con man like Bernie Madoff.