Top 10 Questions to Ask Your Financial Advisor
We believe it is of utmost importance to work with a financial advisor who has a fiduciary duty to his or her clients. Fiduciary duty requires advisors to put client interests ahead of their own when providing investment and financial advice.
Since inconsistencies and confusion abound regarding the various ways that people in the financial services industry are paid and the levels of their responsibilities to clients, we set forth a set of very direct questions for clients to use in evaluating whether their advisors are acting in their best interest.
From our founding in 1991, we have always served our clients under the fiduciary standard – putting the interests of our clients ahead of our own. Throughout our history, clients have benefitted from our objective advice provided under a transparent and highly competitive fee structure. Clients also value our sound investment philosophy, tax-efficient strategies, deep financial planning experience, and team of passionate, highly credentialed financial advisors.
1. WILL YOUR FIRM STATE IN WRITING THAT YOU ARE ALWAYS A FIDUCIARY?
Yes. We have served our clients as fiduciaries since our founding in 1991.
2. WHAT IS YOUR EXACT FEE SCHEDULE?
We disclose our fees on a quarterly basis in an itemized invoice which is part of our quarterly reporting package to each client. Billed in arrears, our fees are based on the size of each client’s combined assets under management at the end of each quarter using the following annual rate schedule:
TIERED RATE SCHEDULE* RATE
First $2 million 0.85%
Next $1 million 0.70%
Next $7 million 0.50%
Portion above $10 million 0.40%
* Based upon a particular client’s facts and circumstances, the Firm may charge a minimum quarterly fee.
3. DO YOU CHARGE AN ADDITIONAL AMOUNT FOR FINANCIAL PLANNING?
No. Our investment management and financial planning services are provided under our asset-based investment advisory fee arrangement. We may consider charging by the hour or retainer in special circumstances.
4. WHAT DOES COMPREHENSIVE FINANCIAL PLANNING LOOK LIKE?
In addition to investment management, we provide personalized financial planning, the scope of which depends on each client’s needs. Our financial planning services may include retirement planning, tax planning, saving and debt reduction strategies, estate plan review, charitable gift planning, recommendations regarding insurance matters, and consultation on various other personal financial issues.
5. THERE ARE COUNTLESS FINANCIAL SERVICE ACRONYMS. THE CFA AND CFP® ARE WIDELY ACKNOWLEDGED AS THE BEST LICENSES IN THE INDUSTRY. WHICH ONES DO YOUR ADVISORS HAVE?
All of our advisors are CERTIFIED FINANCIAL PLANNERS™ and many are also CFA® charterholders. These credentials require multiple years of study and experience to attain. Our team also includes post-graduates from world-renowned business schools including the Harvard Business School, the University of Chicago Booth School of Business, and the Kellogg School of Management at Northwestern University. We take the responsibility of managing clients’ life savings very seriously, so knowledge is one of our core values. We believe our commitment to knowledge and ongoing learning separates us from other investment advisory firms and allows us to provide superior service to our clients.
In addition, Dowling & Yahnke has had an advisor listed on Barron’s Top 100 Independent Financial Advisors for twelve consecutive years **
6. DO YOU SELL ANY PRODUCT OR EARN INCENTIVES FROM ANY VENDOR TO RECOMMEND THEIR PRODUCTS?
No, we never have.
7. DO YOU EARN OR PAY REFERRAL FEES TO OTHER PROFESSIONALS TO GENERATE NEW BUSINESS?
No. We do not pay or receive third-party referral fees to generate new clients. We regularly refer clients to tax advisors, estate planning attorneys, insurance agents, mortgage lenders, and other professional advisors. Our goal in making referrals is to identify trusted professionals that will provide excellent service at a fair cost to our client. We do not receive any compensation for referring clients to other professionals.
8. WHAT IS YOUR FIRM’S INVESTMENT PHILOSOPHY?
The Firm’s investment philosophy incorporates many principles of “Modern Portfolio Theory,” which has been thoroughly researched and supported for decades by leading financial academics, including several Nobel Prize winners. Our philosophy emphasizes market efficiency along with the investment factors most impactful to returns over the long-term: risk management, minimizing costs, investing tax efficiently, global diversification, and disciplined rebalancing.
Accordingly, we generally do not engage in stock picking, market timing, or other active management strategies. We utilize individual securities for the U.S. large cap stock and municipal bond portions of selected client portfolios, primarily for the tax benefits available through use of those securities. The firm utilizes well-diversified mutual funds and exchangetraded funds to access taxable fixed income, U.S. mid/small cap stocks, non-U.S. stocks, real estate securities, reinsurance and other asset classes. We have long-term institutional relationships with Dimensional Fund Advisors (over 25 years) and Vanguard, which offer very low cost, tax efficient funds across global asset classes.
9. ARE YOU “ACTIVE” OR “PASSIVE”? WHAT IS YOUR TRADING STRATEGY?
As discussed above, we believe that markets are predominantly efficient in valuing securities. Therefore, we do not pursue technical analysis, market timing, or other active management strategies. We regularly review the research literature in this area, finding that the vast majority of those who engage in active strategies (technical analysis, market timing, stock picking, etc.) underperform the market over long periods of time.
We trade as little as possible to minimize commissions and taxes, which reduce portfolio returns. When we do trade, it is to add economic benefit by (1) raising cash needed to fund the client’s cash requirements; (2) investing excess cash in the portfolio generated by interest, dividends, or new cash contributions; (3) executing tax-oriented trades to save the client income or capital gains taxes; and (4) rebalancing the portfolio to the client’s target asset allocation. In general, our trading volume is highly associated with volatility in the equity markets. Accordingly, we trade substantially more when the markets are down or up sharply to take advantage of opportunities to tax manage and rebalance portfolios (buy stocks when the market is down and trim stocks when the market is up).
10. WILL I RECEIVE QUARTERLY REPORTS INCLUDING FEES AND PERFORMANCE?
We report total investment returns, inclusive of dividends and interest, to our clients on a quarterly basis. In addition, supplemental return information by asset class and relevant benchmarks are also available to clients. As discussed above, our quarterly reporting package includes an invoice detailing our fees for the quarter.