7 Things Your Financial Advisor May Not Be Telling You
WORRIED ABOUT YOUR FINANCIAL FUTURE? In a world full of economic uncertainty and market shocks, it’s no wonder many people feel concerned about their financial well-being in retirement. And it’s no wonder that many people turn to financial advisors for help. But what if you’re working with an advisor and you’re still worried about your financial future? It’s not an unreasonable position. Many advisors aren’t equipped to handle your entire financial life. From saving and investing to tax-efficient withdrawal plans and estate planning, wealth management is inherently complex. It’s practically impossible to entrust just one person to do it all. With so many areas to cover, the ones they miss—or deliberately gloss over—could be the very ones that ruin your retirement. That’s why we believe it’s critical you know the seven things your financial advisor may not be telling you. We encourage you to read this guide and complete the checklist at the end to see how your advisor stacks up.
If your advisor is falling short of your expectations, call us today to schedule a free, no-obligation meeting: 1-888-747-9804.
THE 7 THINGS YOUR FINANCIAL ADVISOR MAY NOT BE TELLING YOU Read carefully: Your retirement is at stake.
1
Your advisor may not always be legally obligated to work in your best interests.
2
You may not be getting the specialized financial advice you need.
3
Hidden fees could be wrecking your returns.
4
You may be taking unnecessary risk in your portfolio.
5
Financial planning may be more important than investments.
6
Your advisor may be more focused on acquiring new clients than on fostering a long-term relationship.
7
Your advisor may not know you as well as you think.
Wealth Enhancement Group | wealthenhancement.com
3
1
Your advisor may not always be legally obligated to work in your best interests.
Some brokerage firms can sell you proprietary products that benefit their bottom line, even if they’re aware of another product that would better suit your needs and goals. In 2015, the Department of Labor introduced a law that would require anyone providing advice regarding retirement accounts to act in a fiduciary capacity, meaning they legally must act in their clients’ best interests when making recommendations that affect their clients’ financial plans for retirement. At the time of print, this legislative proposal has yet to be fully enforced. You may want to investigate whether your advisor’s recommendations are truly the best option for your personal financial goals. After all, if they aren’t advising on an account or product that’s specifically earmarked for retirement, they may not be held to the fiduciary standard. We recommend taking it one step further: Work with an advisor that’s already held to the fiduciary standard 100% of the time, such as a Registered Investment Advisor (RIA or RIA firm). When working with an RIA-affiliated advisor such as Wealth Enhancement Advisory Services (the RIA arm of Wealth Enhancement Group), there should be no question that the advice you’re being given is in your best interests. Ever.
2
THE BOTTOM LINE If you want to ensure that your advisor is legally required to act in your best interests 100% of the time, work with a Registered Investment Advisor firm.
You may not be getting the specialized financial advice you need.
At many firms, you’re only getting the expertise of a single financial advisor. While they may have a wide range of knowledge, it’s exceedingly unlikely that one person can be a true expert in all of the specific fields that comprise wealth management, from investment management to retirement income planning. That means you either have to deal with potential gaps in your plan, or you have to seek out several different experts to get a truly comprehensive plan: an investment manager, a CPA, a financial planner, an estate planning attorney, etc. And what that typically amounts to is more paperwork, more accounts to track, more expense and less cohesion. That’s why Wealth Enhancement Group deploys a team-based approach that we call the Roundtable. We have on-staff specialists in Social Security, long-term care insurance, tax strategies, and much more, that work with your lead advisor to help ensure that your financial life is covered from every angle. And we do it all under one roof, all for what some others charge for investment management alone.
4
THE BOTTOM LINE Working with a team-based advisory firm helps ensure your financial life is covered from every angle. You get a unified, comprehensive vision of your financial life—without the hassle.
Wealth Enhancement Group | wealthenhancement.com
3
Hidden fees could be wrecking your returns.
Consumers aren’t always aware of the total cost they’re being charged. For example, you may not be aware of the “internal management fee” of that mutual fund, which may be 2%. And while the extra 2% may not sound like a lot, it can put a dent in your returns over time—not only is your investment balance reduced by the fee, but you also lose out on any return you would have potentially earned on that extra money. Services that tend to provide the most long-term value—things like high-quality financial advice, retirement income planning and tax planning—are typically justifiable uses for your fees. But commoditized services like transaction fees have lesser value and should be mitigated as much as possible. At Wealth Enhancement Group, cost efficiency is a central tenet of our investment philosophy. We believe your advisor should be actively working to minimize the “hidden fees” that can chip away at your net returns. It’s why we’ve used our scale with some investing partners to negotiate lower fees for common mutual funds. We take those savings and pass them on to our clients.
THE BOTTOM LINE Fees aren’t inherently bad. Your advisor should be able to explain the total fees you can expect to pay in straightforward terms, and they should be able to explain how those fees provide real value.
Furthermore: Our fee includes the value-added services we mentioned above (financial planning, tax strategies, estate planning, etc.). We do it all for what some others charge for investment management alone.
Examples of Common Hidden Fees¹
The following types of fees should be minimized whenever possible. Investing in mutual funds involves risk, including possible loss of principal.
$
$
$
EXCHANGE FEES
ACCOUNT FEES
SALES LOADS
An exchange fee is a fee that some funds may impose on you if you exchange (transfer) your shares in one fund for shares of another fund within the same fund group.
An account fee is a separate fee that some funds may impose on you in connection with the maintenance of your accounts. For example, some funds impose an account maintenance fee on accounts valued at less than a certain dollar amount (for example, on accounts valued at less than $10,000).
Some mutual funds charge a fee called a sales load. Sales loads serve a similar purpose to commissions by compensating the financial professional for selling the mutual fund to you. Sales loads can be front-end in that they are assessed at the time you make your investment or back-end in that you are assessed the charge if you sell the mutual fund usually within a specified timeframe.
Sources: Securities & Exchange Commission Investor Bulletins, "Mutual Fund Fees and Expenses," "How Fees and Expenses Affect Your Investment Portfolio." 1
Wealth Enhancement Group | wealthenhancement.com
5
4
You may be taking unnecessary risk in your portfolio.
You’ve heard it time and time again: Diversification is one of the keys to successful investing. But the problem is that the typical approach, asset class diversification, ignores some important risk factors that could destabilize your portfolio. Indeed, as many experienced in the 2008-2009 market crash, just because you are diversified by asset class doesn’t necessarily mean you’re any safer for it. For example, if you look at Figure 1 below, you’ll see a portfolio that looks diversified by asset class—e.g., large cap stocks, small cap stocks, bonds, etc. But Figure 2 below reveals the hidden truth about this very same portfolio: the overwhelming majority of the securities are dependent on the well-being of one company.
US Large Cap US Small Cap
ASSET ALLOCATION
International Equity
FIGURE 1
High Yield Bonds
EM Equity US Fixed Income EM Debt Alternatives
THE BOTTOM LINE Asset class diversification may not be able to insulate you from market shocks and could put
RISK CONTRIBUTION FIGURE 2
Company Risk Interest Rate Risk Purchasing Power Risk
your assets at a higher risk than you think. Effective diversification may help boost your riskadjusted rate of return.
Manager Skill Risk
This is a hypothetical example based on the September 2008 collapse of Lehman Brothers and a plethora of securities tied to this once-huge firm. Asset class diversification simply isn’t enough. At Wealth Enhancement Group, we believe in “effective diversification,” a multidimensional strategy that incorporates diversification by asset class, risk type and investment styles. We believe it’s the best path to mitigate risk while seeking the best possible returns. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
6
Wealth Enhancement Group | wealthenhancement.com
5
Financial planning may be more important than investments.
Investing is an inherently risky business. The markets are not under your control. Your own financial situation is more predictable, which is why planning is the best way to help preserve and grow your wealth. As seen in the example below, if you invested $1 million in a portfolio made of 50% equities and 50% bonds in 1972, and withdrew 4% every year, you’d not only not run out of money after 44 years—you would have doubled your investment! But that same portfolio that performs so well at a steady 4% withdrawal rate runs out of money much faster when the withdrawal rate is bumped up even just 1%. If you had withdrawn 5% a year starting in 1972, you would have run out of money in 1996.
$3,500,000 $3,000,000 $2,500,000
THE BOTTOM LINE
$2,000,000 $1,500,000
Smart financial planning can help ensure that your hard-
$1,000,000
earned money lasts throughout
$500,000
retirement—and when paired with a thoughtful investment 20
7%
16
96
8%
19
89 19
82 19 84
19
19
72
$0
6%
5%
strategy, you may even have money to spare.
4%
This is where the value of a financial advisor with expertise in retirement income planning comes in—based on your family history, health, and other factors, we can help determine an appropriate time horizon and sustainable withdrawal rate for you to use when mapping out your retirement plan. For example, if you retired in 1972 and you wanted to plan for a 25-year retirement and didn’t have any heirs to whom to leave assets, the 5% withdrawal rate indicated by the dark gray line may have been perfectly suitable.
Wealth Enhancement Group | wealthenhancement.com
7
6
Your advisor may be more focused on acquiring new clients than on fostering a long-term relationship.
Consumers need to be aware that some advisors are primarily relationship managers. They manage the relationship with the investor, respond to client requests, and recommend and sell products. This kind of advisor’s primary job is to bring in a lot of new assets and build up a book of clients. They are not judged internally on how well their clients’ investments perform; they are judged on how many new clients and additional assets they bring into the company. If your advisor is constantly out trying to obtain new clients, how can you be sure you’ll get the ongoing advice that you need and deserve? Who is looking out for you after you’ve signed on as a client? Through our centralized marketing group and our Roundtable team, Wealth Enhancement Group allows your advisor to focus on one thing and one thing only: delivering excellent service.
7
THE BOTTOM LINE If you’re seeking a long-term advisory relationship, you deserve to work with someone whose sole task is servicing (not acquiring) clients.
Your advisor may not know you as well as you think.
Your goals are unique, your values are unique and your financial history is unique. So why is it reasonable to think that a cookie-cutter financial plan is going to adequately meet your unique financial planning needs? If your goal is to plan for the long term, working with an advisor who has the time and dedication to truly get to know you and your family is an invaluable asset. While your financial goals may change over time, your core values likely won’t, and it’s important for your advisor to know both so that s/he can seek to position you for success without taking on more risk than you’re comfortable with. For example, let’s say you think you want to retire with at least $80,000 a year in income. Your advisor should not only be able to tell you if that’s achievable, they should also be able to tell you what it’ll take to get you there. It may mean working three more years, taking a more aggressive stance in your portfolio, downsizing to a smaller home with a smaller mortgage—or some combination of the above.
THE BOTTOM LINE An advisor who knows your longterm goals can help you stay on track and avoid making knee-jerk reactions that could potentially derail your plan for retirement.
Only an advisor that has a truly comprehensive understanding of your financial life will be able to make optimal recommendations based on your risk tolerance, history, goals and other personal preferences.
8
Wealth Enhancement Group | wealthenhancement.com
QUESTIONS TO ASK ABOUT YOUR FINANCIAL ADVISOR Wealth Enhancement Group
Your Advisor
Is your advisor’s primary focus serving existing clients, not acquiring new clients?
P m
m
Does your advisor / firm proactively contact you with important and relevant information?
P m
m
Do you work with an independent, privately held firm?
P m
m
Does your firm NOT hold any proprietary products, to help ensure you get objective advice?
P m
m
Does your firm offer a Roundtable™ team of specialists in-house, who are available to meet with you and work on your plan, including…
P m
m
CPAs (tax strategies)?
P m
m
CFP®s (financial planning)?
P m
m
JDs (estate planning)?
P m
m
Insurance Specialists?
P m
m
An investment team that monitors more than 70 world markets?
P m
m
Does your advisor have a team who is actively monitoring your money in markets around the globe?
P m
m
Does your advisor offer a clear and transparent fee schedule?
P m
m
Does your advisor offer effectively diversified portfolios backed by 50 years of industry and academic research?
P m
m
Have your firm’s leaders achieved recognition in the financial community? Do they publish books and articles? Are they invited to comment by major media venues including Forbes.com, The Wall Street Journal, Fox Business, Kiplinger and CNBC?
P m
m
Does your firm have an educational radio show that has been on the air for more than 20 years?
P m
m
Does your firm’s client retention rate exceed 97%?
P m
m
QUESTION
Wealth Enhancement Group | wealthenhancement.com
9
UNSATISFIED WITH YOUR ADVISOR’S RESULTS? If your advisor doesn’t measure up, or if he or she isn’t providing you with clear answers to your questions, then it’s time to call Wealth Enhancement Group at 1-888-747-9804. We’re proud of our client retention rate, which exceeds 97%.* We believe our clients stay with us year after year because we help simplify their financial lives. We give them a process that allows them to feel less stress and make more confident decisions. Our licensed and registered professionals will happily answer questions related to your financial plan for retirement. They’ll explain how our team-based approach to wealth management may be the best fit for your needs.
Call us today at 1-888-747-9804 to schedule your free, no-obligation meeting.
IN THIS NO-OBLIGATION INTRODUCTORY MEETING, WE WILL: Discuss where you are now and what you want to accomplish Identify opportunities for your portfolio and plan Provide proactive next steps to pursue your goals
* Average annual retention rate—January 1, 2010, through December 31, 2016—based on client households with assets greater than $100K in our existing offices.
10
Wealth Enhancement Group | wealthenhancement.com
ALL THE SPECIALISTS YOU NEED, ALL IN ONE PLACE. Life doesn’t get easier as you accumulate wealth. It gets more complicated. Bigger decisions. Higher stakes. Greater uncertainty. To quiet their concerns, some people hire several advisors with different areas of expertise. But that often means more paperwork, more appointments to schedule, and more accounts to track, which translates into adding more stress to an already stressful topic. What you need is a team that can bring everything together into a unified plan that simplifies your life so that you can feel less stress and make more confident decisions. At Wealth Enhancement Group, our Roundtable™ team of specialists and advisors will work together on your behalf through our 3-step UniFi™ process and help ensure your financial life is covered from every angle.
• • • • • •
Call today. 1-888-747-9804 Wealth Enhancement Group | wealthenhancement.com
11
CALL US TODAY. 1-888-747-9804 Schedule a free, no-obligation meeting to learn how our 3-step UniFi™ process simplifies your financial life. (For best service, please call between 8 a.m. and 5 p.m. CT)
Advisory services offered through Wealth Enhancement Advisory Services, LLC (WEAS), a registered investment advisor. Certain, but not all, investment advisor representatives (IARs) of WEAS are also registered representatives of and offer securities through LPL Financial, member FINRA/SIPC. Wealth Enhancement Group and WEAS are separate entities from LPL. Wealth Enhancement Group is a registered trademark of Wealth Enhancement Group, LLC. 1-624306 7/2017