Prudent investors evaluate not only their portfolio performance but also their relationship with their financial advisor. Many times people base their evaluation of their advisor on their portfolio performance, but there are other components to consider. The following are some questions you should ask your financial advisor to help you determine if your incentives are mutually aligned.

Question #1: Are you a fiduciary?

A fiduciary has a legal and moral responsibility to take care of your assets and act in your best interest. A fiduciary is a financial advisor (person) who works for a Registered Investment Advisor (RIA) firm, and is compensated for the management of your assets, which is based on a percentage of the assets. We think this is more appropriate for clients and encourages us as advisors to take a longer-term view of our relationships.

Why is this important? There is a critical distinction between being a steward of our client’s assets vs. pitching products to generate commissions. There’s more on this topic to follow.

Question #2: What fees do I pay?

There is no such thing as an investment that doesn’t cost you anything. In the RIA model, the cost of the investment is included in the assets under management, which we disclose to you. But you should otherwise ask so that you know what you’re paying for.  Fees that are a part of the assets under management at SWS Partners include fund management fees, portfolio management or asset-based fees, platform fees, charges on commissions, trades, M&E fees, and rider fees. All fees associated with your portfolio are dependent on where the funds sit. We welcome your inquiry on what your specific fees are.

Question #3: How are you compensated, and by whom?

Advisor compensation can be very complicated when it involves commissions. Many times their ‘advice’ really isn’t that when you are advised to purchase an investment. In reality, this is how the advisor makes their income, by selling you their products. The commissions are paid to the advisor who sold you the product by the fund-company or broker-dealer; if they don’t sell you something they don’t get paid.

We believe that product selling is not a customized, thoughtful, or an efficient solution that is in your best interest. We are not compensated at SWS Partners by the fund-company or broker-dealer but, rather, are compensated by you for the advice you receive.

Question #4: Where do my portfolio and investment recommendations originate at your firm?

Many times when you are sold products, the product itself sits with the broker-dealer or at the wire house. The firm, not the advisor, often is responsible for creating cookie-cutter portfolios that you invest in along with hundreds of other investors. The recommendations advisors give you in these circumstances originate from the broker-dealer or wire house based on the portfolios they’ve created. This practice is ineffective and doesn’t ensure the client’s portfolio meets their situation, timeline, or risk tolerance.

Question #5: Who handles my account?

If your account sits at a broker-dealer or with a wire house, it is always in competition with other advisors who are sales agents. Their role is to transfer your account to their name or into their broker-dealer or wirehouse to generate commissions. How often are sales agents soliciting you? If your account is at one broker-dealer or wirehouse, you may need to have one person assist you with one transaction while another helps you with something different.

At SWS Partners, we work as a team and focus on specialties we each have. We all help you because each client is a client of the firm. You have access to each member of the SWS Partners team depending on your circumstances, which may change from time to time and require individualized advice.