Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

fee-only investment advisor

Questions to Ask Before Working With a Financial Advisor

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There needs to be a discovery period between advisor and prospective client. It should be conducted almost as an interview. Both advisor and prospective client NEED to find out if the relationship will be a good match. Each situation will be different, but here are a few essential questions every prospective client should ask their potential financial advisor.

How are you compensated?

This is THE MOST IMPORTANT question to ask before beginning a relationship. A financial professional can receive compensation in many different ways and it can often be confusing for clients.

  • Fee-Only –The fee paid is usually based on assets under management (AUM). The advisor will charge a percentage fee on the amount of assets under his/her control. These types of professionals do not get compensation from any product sales. The ONLY form of compensation they can receive is from the fee.
  • Hourly Financial Planning Fee – Some advisors charge hourly fees based on the amount of time spent working on a particular client’s financial plan. This will be on a case by case basis.
  • Fee-Based –Not to be confused with fee-only, they are NOT the same thing even though they sound very similar. A fee-based financial advisor has the ability to charge a fee based on assets under management AND collect sales charges and commissions on the products they sell. Fee based financial advisors are usually what are known as “hybrid advisors”. This type of compensation structure has serious flaws to it. If the advisor is compensated for selling products, wouldn’t he/she pitch the product that pays the most? This type of compensation structure often leads to conflicts of interest between client and advisor.
  • Commission-An advisor that gets paid on commission gets a percentage of every transaction they execute for a client. Some of the commission goes directly to the advisor with the rest of it going to the firm. This type of compensation structure is loaded with conflicts of interest. The advisor will want to perform as many transactions as possible so they receive more money. Also in some cases, firms place minimum transaction requirements on their advisors. The firm forces their advisors to execute transactions in client accounts even if it is not in the client’s best interest.
  • Wrap-Fee – A wrap fee account is an all-inclusive compensation method. The advisor charges an assets under management fee and a set fee for all of the trading commission. A wrap-fee would make sense for someone that wants to do a lot of trading in his or her account. Therefore, in a sense there is a limit on the amount of commission the advisor can collect. However, the conflict of interest from receiving commission still exists.

Are you a fiduciary?

There are many different titles financial professionals call themselves (wealth managers, wealth consultants, financial advisors, financial planners etc…). None of these matter as much as whether that person is a fiduciary.

A fiduciary is required to put the client’s interests ahead of their own. Investment advisors are legally bound by the fiduciary standard. Under the fiduciary standard advisors must try to avoid conflicts of interest and disclose any conflicts that do arise. Advisors must use best execution practices when transacting client accounts. Best execution involves performing the transaction at the lowest cost and by the most efficient means possible. Fiduciaries’ loyalty reside with the client only.

A financial professional with any other title beside investment advisor or certified financial planner may not be required to act as a fiduciary. All other financial professionals will be acting under the suitability standard of care. The financial professional has to believe that the investments are suitable for the client. They do not have to act in the best of interest of their clients. As long as the recommendations of the financial advisor meet the objectives of the client, the suitability standard has been met. The disclosure of conflicts of interest are also less strict under the suitability standard. The financial professional’s loyalty is split between what is best for his/her firm and what is best for the client.

What is your investment strategy?

An advisor’s investment strategy should be one that can adapt to meet your objectives, time horizon and risk tolerance. An advisor should be as transparent as possible when explaining the strategy to you. If an advisor cannot explain their investment strategy to you in a way that you can comprehend, you should probably not work with him/her. If the advisor seems to have a “black box” or says the strategy has “upside with no downside” run the other direction.

It is important to know what kind of investments the advisor will use as well. Most advisors use a combination of stocks, bonds, mutual funds and ETFs in their strategies. There is no need for a strategy to be more complex than that. Simple is better when it comes to investing, despite what some may say.

Clients of advisors should also be told where the investment accounts will be held. Most financial advisors use a discount broker as the custodian of client accounts. The advisor should let the client know which discount broker they work with. This way the client understands where they will be getting statements from and how to access their funds.

What services does your firm provide?

This might seem like a dumb question to ask, but many financial firms provide different services. Some firms are all inclusive meaning they do financial planning, investment management, tax preparation, estate planning, insurance planning etc. While other firms may just specialize in investment management or another area. It is important to define the scope of the engagement prior to entering into a relationship with a financial professional.

It amazes me how little research and effort some people put into finding the right financial advisor. Just because your friend or relative refers you to their financial advisor does not mean they will also be a good fit for you. There is no right or wrong answer as to what type of advisor to work with. What is most important is to ask and UNDERSTAND at least these questions before agreeing to work with an advisor. When you sign up with a financial advisor you’re trusting that person with YOUR money, YOUR livelihood. Do the research, ask questions and don’t accept anything other than 100% transparency. It’s your future at stake after all.

Fiduciary Rule Has Led to an Awakening

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caseyThe fiduciary rule is partially in place as of June 9th. The most important thing this rule has done for the investing world is it has woken the public up to how important it is to work with a fiduciary adviser.

What does being a fiduciary even mean? Well it means that you have to act in the best interest of the client. But what does that even mean?

The difficult part is that it can mean very different things for everyone. This post will cover some key aspects that should be a part of every fiduciary relationship.

1. Honest communication between adviser and client about:

  • Goals
    The adviser needs to know what the money is for. It’s impossible for an adviser to act in the best interest of the client without this knowledge. The adviser may think they are acting in the best interest of the client but without the client communicating their goals the adviser will simply be guessing. This is a two-way street. It’s on the clients to tell their adviser what the goal is. It’s also on the adviser to ask and understand to the best of his/her ability what the client’s goals are. If the client doesn’t have any goals then the adviser should help the client set some reasonable short, intermediate and long term financial goals.
  • Compensation
    Understanding how your adviser gets paid is absolutely imperative. All fiduciary advisers should be up-front and open about their fees. If they’re not, that’s a serious red flag. An adviser that is unwilling or unable to explain his/her fee structure to their client’s is not an adviser that should be trusted.
  • Process
    A financial adviser should be able to explain their investment/financial planning process so all of their clients can easily understand it. If they can’t, their process is most likely too complicated. Keeping things simple and cheap works when it comes to investing.
  • Costs
    Every investment has some sort of cost associated with it.  Clients should know how much it’s costing them to own their investments. It’s on the advisers to let them know.

2.  Always doing the right thing for the client no matter what.

  • Sometimes fiduciary advisers are going to have to recommend a client do something that hurts their firm. This is the very essence of what being a fiduciary is all about. For example let’s say a client really needs to pay off a large debt he/she has. Their options are to either take out money from their investment account with their adviser  or open up a new credit card. Since taking on new debt just to pay off old debt is a not really getting rid of the problem, the adviser should recommend the client takes the money out of their investment account. This option would hurt the firm since the assets would no longer be under the adviser’s control. However, it would be beneficial to the client because they would be clearing some debt off their plate. A fiduciary should always put the client’s interests ahead of their own, plain and simple.

3. Limited conflicts of interest.

  • Advisers that charge an assets under management (AUM) fee or a retainer fee inherently have less conflicts than advisers paid on commission or by a wrap fee.  The real conflicts of interest are seen when “financial advisers” are incentivized to sell their firms investment products. These “advisers” get paid extra to put their clients into their firms products. Naturally these “advisers” will put their clients into the investments that pay them the most, not the investments that are in the client’s best interest.  It’s just like Warren Buffet said “never ask a barber if you need a haircut”. Never ask a “financial adviser” or stock broker (who gets paid to put you into products) for financial advice. Instead look for a fee-only adviser. There will never be a conflict free relationship, but minimizing conflicts of interest is a crucial aspect of being a fiduciary adviser.

Now that the Department of Labor’s fiduciary rule is partially in effect, I’m hopeful for the future of retirement savers. I’m slightly skeptical about how much the rule will actually be enforced. But like I said the most important thing this rule has done is it has woken investors up. It has woken them up to the fact that inexpensive, less-conflicted, honest financial advice is out there.  Now the investors just have to find it. When looking for an adviser make sure he/she covers the three aspects covered above as these should be a part of every adviser-client relationship. Especially if that adviser holds them-self out as a fiduciary.

Mullooly Asset Show: Episode 44

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‘Bad Timing Costs Investors 2.5% A Year’ – Timothy Strauts – Morningstar

Tom Mullooly: We’re talking to you millennials in episode 44. Listen up.

Welcome to the Mullooly Asset Show. I’m your host Tom Mullooly and this is episode number 44.

People ask us all the time, “Where do you get these questions from? They’re really good.” We get them from our viewers, we get them from our clients, we get them from conversations that we have with people all day long who are asking about some guidance with their investments. So if you’ve got a question, I can almost guarantee that someone else is thinking the same thing you are. Get in touch with us. It will probably show up in a future video.

So Tim, what’s the question that we’re going to cover today?

Tim: “If I’m a 31 year old millennial, with a long way to go until retirement, why should I pay for an advisor?”

Tom Mullooly: So why should you work with an advisor? A lot of people think that you need to have a lot of money to work with an advisor. That sounds like only something rich people do. It used to be that way. It’s not so much anymore, and we’ve got some details that we’d like to share with you.

So Mass Mutual the investment company did a study and it showed only 8% of millennials are working with an advisor. So all right, what’s happening with the other 92? Well, some people are still paying off student loans. Some people are not working. Some people are trying to do it themselves. What is interesting though, is in that same study it showed that 62% of people over age 65 are working with an advisor. Think about that. So almost, well 62% of people at 65 or older are finally saying “I can’t handle this on my own. I need to work with someone who’s going to give me a little bit of guidance, steer me in the right direction.”

So flip flopping through different investment strategies is not really a plan, in fact it’s a plan to help you underperform the markets over long periods of time. In fact, bad decisions regarding market timing, moving things in and out, will lead to an average under-performance, get this, an average under-performance of 2.5% per year. That’s according to a study done by Morning Star. So I just want to put it in numbers that everybody can understand.

Suppose you put the money into some market investment. If it goes up 10%, on average people who are not working with an advisor, they’re trying to time the markets, moving in and out, their average return on the 10% gainer … somewhere around 7.5%. Why is that? We look at these things all the time. Clients ask us “Hey this fund said it returned 18%, but I didn’t get 18%.” Want to know why? Because you freaked out and saw that something was happening in the news, and you took the money out of the fund, and then a month later decided to go back into the fund. You missed a nice chunk of the return. Don’t do that. Please don’t do that.

Hey, there’s something else that we want to add. In the same study, only 23% of millennials maintain their retirement strategy. Okay so look, like in the question that we got, someone who’s 31, they’re not going to be needing this money for 30 or 35 years. Maybe even longer. But 3 out of 4 millennials are jerking their money around in and out of the market, depending on the weather, or depending on the news they read on Yahoo that day, or wherever they’re getting their news from. They hear “Oh the market’s down yesterday, I should sell.” That’s not really a plan.

An advisor is going to build a strategy for you and most importantly, they’re going to keep you plugged in to look at the big picture.

Advisors bring a lot of value to the table. Consider working with one. If you don’t have one or you just want to ask a question, get in touch with us. 732-223-9000 or you can find us on the web at Mullooly.net.

Thanks for watching episode 44. See you on the next one.

 

If you would like a PDF copy of the transcription, please follow this link!

Mullooly Asset Show Episode 0

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Hi, I’m Tom Mullooly from Mullooly Asset Management, and thanks for watching our video. We’re calling this one episode zero because we’ve recorded videos in the past where we’ve answered questions, but we never really put together one video that talked about who we are, and what we’re about.

So we’re calling this episode zero so we can jump the line and go back up to the front. The episodes that you found on our website or on our YouTube channel, they all came from questions that we received from our clients.

If you’ve got a question that you’re dying to ask an investment advisor, maybe there’s some particular investment, “Hey, is this thing really a good investment? Is this worth looking into?” Or you have a financial planning question, “I’m not really sure if I’m putting enough money away from retirement or for my kids’ education,” or, “I don’t know what to do because I’ve got a parent that may be going into a nursing home,” we get these questions a lot.

This is what we do. Ask.

Most of the topics that you see our videos came from questions that we’ve gotten from our clients and our viewers, so ask away. If you’ve got a questions, you’re probably not the only one whose got the same question. Just get in touch with us.

So to give you a little bit of a snapshot, picture of what we’re all about, I’ve been in the business for 30 years. I started way back in the 80’s with E.F. Hutton, became licensed broker in the mid-80’s, and after 15 years, I decided that I wanted to work for the other side.

Let me explain.

When you work for a big brokerage firm and sometimes they’re called account executive, stock broker, financial consultant. Sometimes they’re even called financial advisors, all those blurry terms mean that they’re basically a salesperson for a big brokerage firm.

Occasionally you’re going to get stock recommendations, bond recommendations, product sales. Just keep that in mind when you’re working with a broker. It doesn’t mean that what they’re offering you is something wrong. You just need to know how people are compensated in this line of work.

We’ve chosen as a fee-only investment advisory firm, we’ve chosen to take that fee only route. We don’t get a commission when we tell our clients that we want to go forward with this investment or with that investment. We don’t get any commission so we’re not going to be biased when it comes to telling you, “Do this instead of that.”

It’s a HUGE difference there.

Our fees go up and down based on the value of your account. Your success is tied to our success as well. That’s really important. It puts your advisor on the same side of the ledger, the same side of the desk so to speak as you. That’s a big, big deal.

Another thing that’s really important is that investment advisors, unlike brokers, have a fiduciary responsibility to their clients. We’ll get into that in several videos, but it’s important to know that I’m amazed even in 2017 as we’re recording this that many investors don’t know that their broker doesn’t have any fiduciary obligation to them but advisors do.

There’s a huge world of difference out there between brokers and advisor.

There’s something else though that you need to know about Mullooly Asset Management that first of all I think is really cool and secondly pretty unique to who we are and what we do. We’re a family business.

I’ve been in the business for 30 years but I’ve had the pleasure in the last few years of working right alongside my sons. They’re all in the business. They’re all licensed investment advisors.  They’re here ready to take your questions and help guide you through some different scenarios whether it’s with investments or financial planning.

I think it’s really cool for me to get a chance to work alongside my sons as I get older, as they get older. It’s a great opportunity for us, but I think we bring a little different kind of perspective for our clients.

So come check us out. You can call us. 732-223-9000. Or you can find us on the web at Mullooly.net or you can even check us out on YouTube. Thanks for watching and enjoy the other episodes!

Click here to download the ‘Episode 0’ transcript in PDF form!