Fiduciary/Registered Investment Advisor Questionnaire FACTS to Know

Transcription

1 Fiduciary/Registered Investment Advisor Questionnaire FACTS to Know Whom you entrust with your Financial Future Fiduciary vs. Suitability Why Should You Care? If you are concerned about your or your family s Financial future, you should care. Doesn t sound like much of a big deal, but these two words - fiduciary and suitability - are critical to determining the type of care you receive from your trusted Financial Advisor. Unfortunately, most of the public is not aware that a minority of Advisors are held to a fiduciary standard, while a majority is held to a much lower suitability standard of care. Here are a few FACTS you should know: 1. FACT - Fiduciary Standard: Fee-Only Registered Investment Advisors (RIA), adhering to a Fiduciary Standard Have a Legal Obligation to act in the Client s Best Interest. Registered Investment Advisors (RIA) are registered to provide Investment Advisory Services and Investment Management Services. 2. FACT - Suitability Standard: These so-called Advisors are Not Fiduciaries and work under the lesser Suitability Standard and DO NOT have a Legal Obligation to act in the Client s Best Interest. Stock Brokers, Insurance Agents, Annuity Salespeople, Advisors, Financial Consultants, Wealth Managers or Registered Representatives- all who benefit from selling you an investment or Financial products for commissions. This is the vast majority of so-called Advisors; it s estimated that over 90% are Salespeople. 3. FACT - The Securities and Exchange Commission (SEC) published a report examining the public s understanding of the differences between Brokerage Firms (Companies selling investments and products) and investment Advisory Firms (those giving advice or managing investments for a fee), and found that there is much confusion in the mind of the public between the two. Survey results indicate 76% of Americans do not know the difference between a Broker/dealer Broker and a Registered Investment Advisor (RIA). 4. FACT - Your Broker/so-called Advisor may use deceptive titles to mislead you! There is nothing to stop Brokers from calling themselves Advisors. Titles like Financial Advisor, Financial planner and Financial consultant are common but unfortunately those words are nothing more than window dressing on a business card. A Broker is a Salesman. Salespeople in the Financial business currently have the freedom to call themselves whatever they like. 5. FACT - If you Do Not ask the right questions, you will fall prey to Wall Street s Conflicts of Interest that will Hurt your Investments and Retirement. Utilize the following questionnaire to get the right answers to your questions and to find a Firm who has a Legal Obligation to Work in Your Best Interest and actually manages your portfolio. Don t Be Sold!

2 Fiduciary/Registered Investment Advisor Questionnaire Questions for a potential Advisor and Firm: 1. How are you and your Firm compensated? Fee-Only Fee-Based Fee-Offset Commissions or Fee In-Lieu of commissions Brokerage Account or insurance products 2. Do you have a Written Investment Advisory Agreement and Form ADV Part 2 Brochure describing your compensation and Investment Advisory Services, that will be provided in advance of the engagement? Yes 3. If you, your Firm or Broker-Dealer earn commissions, approximately what percentage of your Firm s Commission Income is it derived from? % Insurance products % Annuities % Mutual Funds % Limited Partnerships or REITs % Stocks and Bonds % Fee-In-Lieu of commission Brokerage Account, (this is a form of commission) % Other: Explain 4. Does any member of your Firm or Broker-Dealer act as a general partner, participate in, or receive compensation (commissions or fees) from investments you may recommend to me or utilize? Yes (If yes, please explain) 5. Do you receive referral fees from attorneys, accountants, insurance professionals, mortgage Brokers, or others? Yes Page 1 of 3

3 6. Do you or your Firm receive on-going Income from any of the Mutual Funds, Annuities or any Investment Products that you recommend or utilize in the form of 12(b)1 fees, trailing Commissions, revenue sharing agreements or other continuing payouts and incentives? Yes (If yes, please explain) 7. Are there Financial incentives for you, your Firm or your Broker-Dealer, to recommend Certain Financial products? (Such as: commissions, proprietary product sales, firm sponsored products with selling agreements, hidden fees, soft dollar arrangements, sales incentives, revenue sharing arrangements and sales trips, etc.) Yes (If yes, please explain) 8. Do you, your Firm, your Broker-Dealer or Insurance Company create, sponsor, or underwrite any Financial or investment products, such as Mutual Funds, Annuities, Stocks or Bonds, Unit Investment Trusts or others that are sold to your Clients for commissions or fees? Yes (If yes, please explain) 9. Are you currently engaged in any other business, either as a sole proprietor, partner, officer, employee, trustee, agent or otherwise? (Exclude non-investment related activities which are exclusively charitable, civic, religious or fraternal and are recognized as tax-exempt.) Yes (If yes, please explain) 10. Will I have an Annuity Account, Brokerage Account or Investment Advisory Account with your Firm? Annuity Account Brokerage Account Investment Advisory Account 11. Do you have a clearly spelled out investment strategy, in writing, so I can understand how your Firm will manage our portfolio, and so I can better understand your Firm s investment philosophy? Yes, ask for a copy of the Firm s Investment Strategy 12. Do you act as a Fiduciary and an Independent Fee-Only Registered Investment Advisor under a Money Manager capacity, who is responsible for actively managing our portfolio and investments, and who makes appropriate changes as necessary within our goals, objectives and risk profile, under a Registered Investment Advisory Agreement? Yes Page 2 of 3

4 13. Will you sign the Fiduciary Oath below and Act in a Fiduciary Capacity, in the Legal Best Interest of my investment accounts, investments and in the Legal Best Interest for me (us)? Yes FIDUCIARY OATH The Advisor and his/her Firm shall exercise his/her Best efforts to act in good faith and in the Best Interests of the Client. The Advisor shall provide written disclosure to the Client prior to the engagement of the Advisor, and thereafter throughout the term of the engagement, of any Conflicts of Interest which will or reasonably may compromise the impartiality or independence of the Advisor. The Advisor, or any party in which the Advisor has a Financial Interest, does not receive any compensation or other remuneration that is contingent on any Client s purchase or sale of a Financial product. The Advisor does not receive a fee or other compensation from another party based on the referral of a Client or the Client s business. What the Fiduciary Oath means to you - the Client I shall always act in good faith and with candor. I shall be proactive in my disclosure of any Conflicts of Interest that may impact you. I shall not accept any referral fees or any Commissions or any trailing compensation that is contingent upon the purchase or sale of a Financial product. I shall act in a Fiduciary Capacity, in your Best Interest as Specified by the Securities and Exchange Commission Fiduciary Standard. Signature Name Date Firm Name Page 3 of 3

5 Simplified Answer Guide, go to next page if you would like a more detailed education on the right answers: Questions 1 thru 13 and Answers 1. Fee-Only is the RIGHT ANSWER, 2. Yes is the RIGHT ANSWER, 3. ZERO commissions is the RIGHT ANSWER, 4. NO is the RIGHT ANSWER, 5. NO is the RIGHT ANSWER, 6. NO is the RIGHT ANSWER, 7. NO is the RIGHT ANSWER, 8. NO is the RIGHT ANSWER, 9. NO is the RIGHT ANSWER, 10. Investment Advisory Account is the RIGHT ANSWER, 11. YES is the RIGHT ANSWER, 12. YES is the RIGHT ANSWER, 13. YES is the RIGHT ANSWER,

6 Detailed Answer Guide: Questions 1 thru 13 and Answers 1. How are you and your Firm compensated? How should a Financial Advisor and Firm charge for services? Strongly consider a Fee-Only Registered Investment Advisor. A Fee-Only engagement removes the potential Conflicts of Interest that are inherent in a commission-based and a fee-based sales relationship with a Brokerage Firm, mutual fund company, insurance company and bank. Fee-Only: Registered Investment Advisors and Firms can only receive compensation directly from you (like a CPA or Doctor) verses being paid by commissions from products they sell. A Fee-Only Financial Advisor cannot receive compensation from a Brokerage Firm, a mutual fund company, insurance company, bank or from any other source other than you. This means they represent you and your Interests when giving you advice. After all, think about where someone's paycheck comes from, and that will tell you quite a bit about where their loyalty lies. Fee-Only Financial Advisors have a fiduciary responsibility to utilize investments that are in your Best Interest. Full Transparency - No Hidden Agenda! Fee-Based: Fee-Based Is NOT The Same As A Fee-Only Financial Advisor. A fee-based Financial Advisor can receive fees paid by you, and commissions paid to them by a Brokerage Firm, mutual fund company, insurance company, or investment partnership. Even though both Fee-Only and fee-based Financial Advisors may have accounts they manage where they charge a percentage of the assets they manage, the investments they place inside these accounts can be very different. Fee-Based Advisors and their Firms have all or many of the same Conflicts of Interest a commission-based Broker and their Firm have. Fee-Based Advisors and their Firms charge fees and earn commissions with overlap of Conflicts with a Brokerage Firm, insurance company or bank. Lack Transparency - Hidden Agenda? Fee-Offset: Fee-Offset Is NOT The Same As A Fee-Only Financial Advisor. Much like a Fee-Based Advisor, they offset their fees when they earn commissions on product sales. They also have the same Conflicts of Interest a Fee-Based or commission-based relationship has. Fee-Offset charges fees and earn commissions with overlap of Conflicts with a Brokerage Firm, insurance company or bank. Lack Transparency - Hidden Agenda? Commission or a Fee-In-Lieu of commission Brokerage Account: Commission Sales Is NOT The Same As A Fee-Only Financial Advisor. Conflicts of Interest with a Brokerage Firm, mutual fund company, insurance company or bank are unfortunately common practice. Most investors truly don t understand the numerous Conflicts associated with a commission Broker and how those Conflicts work against you and your investments. Commission is sales, plain and simple. This is the worst form of Conflicts of Interest. Under a commission relationship your socalled Advisor (Salesman), has No Legal Obligation to work in your Best Interest. Extreme Caution is advised. Lack Transparency - Hidden Agenda? Utilize A Fee-Only Registered Investment Advisor to ensure a Fiduciary relationship.

7 2. Do you have a Written Investment Advisory Agreement and Form ADV Part 2 Brochure describing your compensation and Investment Advisory Services that will be provided in advance of the engagement? Prior to formalizing a relationship, a Financial Advisor should always provide you information which clearly discloses how she/he will be compensated: Fee-Only, Fee-Based, commissions only. Ask for this information prior to commencing a relationship, and if there are any corresponding Conflicts of Interest presented by the compensation arrangement. Be aware that your Interests might not always be placed ahead of the Advisor s. A Registered Investment Advisor (RIA) is registered to provide Investment Advisory Services; a Broker and an Insurance agent are NOT. If the Firm you are working with or interviewing does not provide A Registered Investment Advisory Agreement and a Form ADV Part 2 Brochure, you are NOT working with a Registered Investment Advisor and you do NOT have an Investment Advisory Account; you have Brokerage Account and a Salesman. 3. If you, your Firm or Broker-Dealer earns commissions, approximately what percentage of your Firm s Commission Income is it derived from? Financial Advisors who are compensated based on commissions, should be able to explain how they are compensated and identify what percentage of their compensation is derived from the sale of various commission-based investment products and/or securities trading. In a commission relationship, the Broker/Salesman is required to SELL investment and insurance products their Firms represent and manufacture. Many times these products are inferior and expensive. Commissions lead the Broker/Salesman and their Firm to sell investment products that are often better for their Interests, than for Your Best Interest! Financial Advisors who do receive commissions but cannot account for how they are compensated, should raise serious questions from the consumer. 4. Does any member of your Firm or Broker-Dealer act as a general partner, participate in, or receive compensation (commissions or fees) from investments you may recommend to me or utilize? Ask your prospective Financial Advisor if she/he is limited to presenting certain types of investments or investment products there Firm represents. If so, inquire why she/he is limited, and how this might affect the success of attaining your goals and/or the amount of commissions to be paid. 5. Do you receive referral fees from attorneys, accountants, insurance professionals, mortgage Brokers, or others? As you work with a Financial Advisor, other needs revolving around important Financial issues will become evident. Certain Advisors, for example, recommend attorneys, accountants, insurance agents, and mortgage Brokers to their Clients. You should inquire whether the Financial Advisor will receive a referral fee for the recommendation. If the Financial Advisor does receive a referral fee or some other type of compensation from the professional(s) that she/he may recommend to you, you should seriously consider this Conflict of Interest prior to engaging the recommended professional.

8 Financial Advisors receiving a referral fee from other professionals for referring your business may not be acting in your Best Interests. A true Fiduciary will not receive any compensation from any outside sources. 6. Do you or your Firm receive on-going Income from any of the Mutual Funds, Annuities or any Investment Products that you recommend or utilize in the form of 12(b)1 fees, trailing commissions, revenue sharing agreements or other continuing payouts and incentives? Many investment product sponsors pay 12b(1) fees and similar fees. A Financial Advisor who receives 12(b)1 fees or trailers, is not a Fee-Only Financial Advisor. Trailing fees may negatively affect you, because typically the product sponsor charges shareholders higher fees and then pays a portion of the money to the Financial Advisor on an ongoing basis. Almost all Brokerage Firms and insurance companies engage in revenue sharing agreements with investment products they Sell. The more they sell of one investment product over another, the more kickbacks they get from those sales agreements. That s a Conflict and not in your Best Interest. 7. Are there Financial incentives for you, your Firm or your Broker-Dealer, to recommend certain Financial products? (Such as: commissions, proprietary product sales, Firm sponsored products with selling agreements, hidden fees, soft dollar arrangements, sales incentives, revenue sharing arrangements and sales trips, etc.) Commission-based Advisors may receive higher commissions on certain products they sell than on others. This may influence their decision to recommend investment products that are not in your Best Interest. Ask your prospective Financial Advisor how his/her recommendation might affect the success of attaining your goals and/or the amount of fees to be paid. Fee-Only Advisors do not have this Conflict of Interest. They are able to recommend investments based solely upon your specific needs. 8. Do you, your Firm, your Broker-Dealer or Insurance Company create, sponsor, or underwrite any Financial or investment products, such as Mutual Funds, Annuities, Stocks or Bonds, Unit Investment Trusts, Structured Products or others, that are sold to your Clients for commissions or fees? Many large and small Brokerage Firms and Insurance Companies create investment products that their Brokers are required to sell. Even though there may be a much better investment for your needs, a Commission or Fee-Based Advisor may have to (and is more likely to) sell their Firm s sponsored or created investment products. This means your Interests are sent to the back of the line. Many of these investment products have High Internal Yearly Fees, Huge Commissions, Front-End Commission and Back-End Sales Loads, and are not be in your Best Interest. 9. Are you currently engaged in any other business, either as a sole proprietor, partner, officer, employee, trustee, agent or otherwise? (Exclude non-investment related activities which are exclusively charitable, civic, religious or fraternal and are recognized as taxexempt.) By knowing what other business ventures a Financial Advisor is involved in, you will better understand if there are any Conflicts of Interest with regard to the advice that you might receive. This is especially important if the Advisor is involved with any other investment-related entity. Ask for a

9 detailed account of how that relationship will impact the advice she/he will provide you. The outside relationship may be in Conflict with your personal Interests. 10. Will I have an Annuity Account, a Brokerage Account or an Investment Advisory Account with your Firm? A Brokerage Account and Annuity Account is NOT an Investment Advisory Account When you have a Brokerage Account, not an Investment Advisory Account, you are responsible for managing your own investments, researching your own investments, and developing your own investment strategy your Broker and his Firm is NOT responsible (although most investors think that s what they do). They Don t Read this disclosure below; it shows up on EVERY Brokerage agreement you sign. This was mandated by the Security and Exchange Commission (SEC). Your account is a Brokerage Account and not an Advisory Account. Our Interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our Obligations to you, including the extent of our Obligations to disclose Conflicts of Interest and to act in your Best Interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons compensation, may vary by product and over time. It clearly states that you are working with a Salesman. Your Broker or Brokerage Firm s Interests are not the same as yours, and you have a Brokerage Account, NOT an Advisory Account. 11. Do you have a clearly spelled out investment strategy, in writing, so I can understand how your Firm will manage our portfolio and so I can better understand your Firm s investment philosophy? How an investment Firm manages your investment portfolio is an important consideration. You need to understand the Firm s investment philosophy and their investment style. You need to know if they are a buy and hold or an active money manager. How do they reduce risk and protect your portfolio from major investment losses? Or, do they asset allocate and ride the investment market up and down? If the Advisor or Firm you re interviewing cannot provide a written investment strategy, that should raise serious questions in your mind. A real Investment Advisory/Money Management (RIA) Firm should be able to explain their investment strategy and how it will help you meet your investment goals. 12. Do you act as a Fiduciary and an Independent Fee-Only Registered Investment Advisor under a Money Manager capacity, who is responsible for actively managing our portfolio and investments, and who makes appropriate changes as necessary within our goals, objectives and risk profile, under a Registered Investment Advisory Agreement? Most stock Brokers, their Firms and so-called Advisors do not manage investment portfolios or your investments, and are not responsible to actively watch, continuously research, or contact you to make timely changes to your investments or portfolio after you purchase those investments. A Fee-Only Registered Investment Advisor under a money manager capacity is responsible for actively managing your portfolio and investments, actively monitoring,

10 continuously researching and making timely changes to your investments or portfolio when necessary within your goals, objectives and risk profile. If you are not under a Registered Investment Advisory Agreement, most likely you have a Brokerage Account, not an Advisory Account. 13. Will you sign the Fiduciary Oath below and Act in a Fiduciary Capacity, in the Legal Best Interest of my investment accounts, investments and in the Best Interest for me (us)? If the Advisor and Firm you are interviewing will not sign off as Fiduciary, in a Money Manager Capacity and will Not answer the questionnaire, it should speak volumes about that person and their Firm. You should have serious doubts about any Advisor or Firm who will NOT work in a 100% Fiduciary Capacity or In Your Best Interest. Accountability is important in investment management. While there are many people in the Financial services industry who profess to have the Client s Best Interests at heart, they still may make recommendations that present a Conflict of Interest. If your Financial Advisor, or prospective Financial Advisor satisfactorily answered these questions, then that Financial Advisor most likely holds to a Fiduciary Standard and offers Investment Advisory Services. This means he/she is placing YOUR Interests ahead of their own. Don t settle for less than the Fiduciary Standard and an Independent Fee-Only Registered Investment Advisor (RIA). Check out the Firm you are interviewing for actions against their Clients: Brokerage Firms - CHECK Registered Investment Advisors - CHECK Rezny Wealth Management, Ltd. Fee-Only Money Management Fiduciary Standard of Care - "In Your Best Interest"