4 crucial questions to ask your wealth manager

Not asking for this information could cost you

Sep 5, 2013 @ 11:08 am

By Stan Luxenberg

When Lehman Brothers Holdings Inc. collapsed in 2008, many investors made panicked calls to their financial advisers. Now that stocks have climbed, you may feel less need to raise questions. But this is no time for complacency. In good and bad times, you should maintain a dialogue with your wealth manager. Here are some questions to ask:

What will you do if the bond market collapses or stocks drop 40% next year?

In the past, most advisers insisted on staying the course in all markets. But since the financial crisis, more advisers have been rethinking their approaches. To limit risk, they sell stocks and shift to cash or rely on mutual funds that change their asset allocations. To prepare for the next crisis, find out how your adviser reacted to the downturn in 2008. “You want to know what actions the adviser took during the downturn and how his portfolios performed,” said Peter Rup, chief investment officer of Artemis Wealth Advisors LLC.

Under Securities and Exchange Commission rules, advisers cannot show the results of individual portfolios. But they can reveal the composite results of all their portfolios. By looking at the figures, you can see how the average portfolio fared and what the asset allocation was.

In case of an emergency, how fast can I get access to my money?

Many advisers keep money in mutual funds, which permit immediate withdrawals. But some clients hold hedge funds or other investments that permit only periodic withdrawals. During the financial crisis, some investors waited more than a year to obtain their funds. “If you need to pay college tuition in six months, then you should talk to your adviser and make sure that the cash will be available,” said Paul Palazzo, managing director of Altfest Personal Wealth Management.

How are you compensated?

In the past, most advisers charged commissions every time they traded a stock or fund. In recent years, they have begun to charge annual fees, such as 1% of assets. The aim is to make sure that advisers have the same interests as clients. But some fee-only advisers receive incentive payments from their firms for using in-house funds. “Advisers should be objective,” said Evan Roth, a managing partner with BBR Partners LLC. “You should be careful about advisers who get annual bonuses for steering clients to certain investments.”

Did you design the asset allocation yourself?

Many firms develop model asset allocations that can be used by all their advisers. A typical model might put 60% of assets in stocks and 40% in bonds. At competent firms, the models are sensibly designed and usually conservative. But clients should beware if advisers are providing unusual allocations. “The adviser should be able to convince you that there is a good reason to depart from the standard allocation,” Mr. Rup said.


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