Ques­tions to ask your fi­nan­cial ad­viser

The Norwalk Hour - - BUSINESS -

Every in­vestor will be af­fected by the up­com­ing changes in reg­u­la­tory stan­dards that will ap­ply to fi­nan­cial ad­vis­ers. This de­vel­op­ment started last April, when the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion pro­posed rules that would, among other things, change how fi­nan­cial ad­vis­ers present them­selves to in­vestors.

At the same time, the SEC en­gaged RAND Corp. to con­duct a na­tion­wide sur­vey (along with in­ter­views of in­vestors) to gauge re­ac­tions to the sam­ple Form CRS Re­la­tion­ship Sum­maries. Th­ese would be new dis­clo­sure doc­u­ments that would be re­quired to be pro­vided to in­vestors to hope­fully help lessen the con­fu­sion that they have about the dif­fer­ences in “ser­vices of­fered, fees charged, and le­gal stan­dards and obli­ga­tions.”

The results of the RAND study have just been made avail­able.

Let’s talk about one as­pect, a list of ques­tions that would be an­swered for you by your fi­nan­cial ad­viser.

As you read through the ques­tions (quoted from the pro­posal), think about whether the an­swers would be help­ful to you. “Ad­vi­sory” and “bro­ker­age ac­counts” would be de­fined for you.

“1. Given my fi­nan­cial sit­u­a­tion, why should I choose an ad­vi­sory ac­count? Why should I choose a bro­ker­age ac­count?

“2. Do the math for me. How much would I pay per year for an ad­vi­sory ac­count? How much for a typ­i­cal bro­ker­age ac­count? What would make those fees more or less? What ser­vices will I re­ceive for those fees?

“3. What ad­di­tional costs should I ex­pect in con­nec­tion with my ac­count?

“4. Tell me how you and your firm make money in con­nec­tion with my ac­count. Do you or your firm re­ceive any pay­ments from any­one be­sides me in con­nec­tion with my in­vest­ments?

“5. What are the most com­mon con­flicts of in­ter­est in your ad­vi­sory and bro­ker­age ac­counts? Ex­plain how you will ad­dress those con­flicts when pro­vid­ing ser­vices to my ac­count.

“6. How will you choose in­vest­ments to rec­om­mend for my ac­count?

“7. How of­ten will you mon­i­tor my ac­count’s per­for­mance and of­fer in­vest­ment ad­vice?

“8. Do you or your firm have a dis­ci­plinary his­tory? For what type of con­duct?

“9. What is your rel­e­vant ex­pe­ri­ence, in­clud­ing your li­censes, ed­u­ca­tion, and other qual­i­fi­ca­tions? Please ex­plain what the ab­bre­vi­a­tions in your li­censes are and what they mean.

“10. Who is the pri­mary con­tact per­son for my ac­count, and is he or she a rep­re­sen­ta­tive of an in­vest­ment ad­viser or a bro­ker-dealer? What can you tell me about his or her le­gal obli­ga­tions to me? If I have con­cerns about how this per­son is treat­ing me, who can I talk to?”

The SEC’s ra­tio­nale for the list was “to en­cour­age re­tail in­vestors to have con­ver­sa­tions with their fi­nan­cial pro­fes­sion­als about how the firm’s ser­vices, fees, con­flicts and dis­ci­plinary events af­fect them.” What is your re­ac­tion?

When RAND sur­veyed in­vestors about th­ese ques­tions, opin­ions var­ied, as I would have ex­pected. There was no bright line that sep­a­rated the good ques­tions from the bad. Most peo­ple felt that the list was ap­pro­pri­ate in length. The ques­tions were not too dif­fi­cult to un­der­stand and not too un­com­fort­able to ask.

What about the fol­low­ing ad­di­tional ques­tions? Would they be help­ful?

“If I give you $1,000 to in­vest, how much will go to fees and costs, and how much will be in­vested for me?

“If I trade more in­vest­ments in my bro­ker­age ac­count, do you (my bro­ker) make more money?

“If I add more money or in­vest­ments to my ad­vi­sory ac­count, do you (my in­vest­ment ad­vi­sor) make more money?

“If I in­vest in funds cre­ated or man­aged by your firm, do you or your firm make more money than if I buy a fund cre­ated by (or man­aged by) some­one else?

“How do you (my bro­ker or ad­viser) get paid?”

In all cases, those sur­veyed were gen­er­ally likely (“very likely” and “some­what likely”) to ask th­ese ad­di­tional ques­tions, ac­cord­ing to the RAND re­port.

To read about the pro­posal, “Form CRS Re­la­tion­ship Sum­mary; Amend­ments to Form ADV; Re­quired Dis­clo­sures in Re­tail Com­mu­ni­ca­tions and Re­stric­tions on the use of Cer­tain Names or Ti­tles,” go to sec.gov/rules/pro­posed/2018/34-83063.pdf. To read the RAND re­port, called “In­vestor Test­ing of Form CRS Re­la­tion­ship Sum­mary,” go to sec.gov/about/of­fices/in­vestorad/in­vestor-test­ing­form-crs-re­la­tion­ship­sum­mary.pdf.

If you would like to share your views with me, take this quick sur­vey:sur­vey­mon­key.com/r/For­mCRS. The sur­vey will help me un­der­stand what ques­tions you think are im­por­tant to ask.

Julie Ja­son, JD, LLM, a per­sonal money man­ager (Jack­son, Grant of Stam­ford) and au­thor, wel­comes your ques­tions/com­ments (read­ers@julie­ja­son.com). Her awards in­clude the 2018 Clar­ion Award, sym­bol­iz­ing ex­cel­lence in clear, con­cise com­mu­ni­ca­tions. Her lat­est book, a cu­rated col­lec­tion of Julie’s columns, is “Re­tire Se­curely: In­sights on Money Man­age­ment From an Award-Win­ning Fi­nan­cial Colum­nist.” To hear Julie speak, visit www.julie­ja­son.com/events.

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