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7 questions to make sure your financial adviser is on your side, according to the one who helped Tony Robbins write his second book about money

Richard Feloni
Tony Robbins

(Performance coach Tony Robbins.Sarah Jacobs)

Tony Robbins became the world's most famous performance coach through decades of energetic seminars and high-profile clients, but he's made spreading personal finance knowledge his mission the past couple years.

Around 2010, Robbins began speaking with what would become 50 of the United States' top financial minds, including his longtime client Paul Tudor Jones, Bridgewater Associates founder Ray Dalio, Vanguard founder Jack Bogle, and JP Morgan Asset Management CEO Mary Callahan Erdoes.

One of the recurring themes he found is that the American public — even those who had accumulated a degree of wealth — needed to become better educated about their relationship to financial advisers, and how they could avoid losing thousands of dollars in the longterm.

Robbins recently came by Business Insider's New York office for a Facebook Live Q&A where he discussed his latest book based on these interviews, "Unshakeable," a much slimmer version of his 2014 book "Money: Master the Game," with additional insights from Peter Mallouk, who was rated the No. 1 wealth adviser in the US by Barron's three times, and who brought Robbins into his firm Creative Planning in 2016.

"If you're watching right now, there's a new word you've got to learn. It's an F word: Fiduciary," Robbins told the audience. He explained that it's crucial to understand the difference between brokers, who will prioritize the interests of their firm, and fiduciaries, who are legally obligated to prioritize their client's interests.

It's especially important to know, especially since a proposed fiduciary rule that would require all financial advisers to be fiduciaries looks like it will not pass under the Trump administration.

Robbins pointed to seven questions in "Unshakeable" — developed with the help of Mallouk — that everyone needs to ask their financial adviser, whether they're looking to manage a few thousand dollars or significant wealth.

1. 'Are you a registered investment advisor?'

Registered investment advisors (RIAs) are fiduciaries, as opposed to brokers.

Opponents to a fiduciary rule becoming law, like President Donald Trump's chief economic adviser Gary Cohn, find it to be an unnecessary restriction on how advisers can serve their clients, who may want to invest in higher-risk funds. But regardless of your approach or politics, you need to know who you're dealing with.

2. 'Are you or your firm affiliated with a broker-dealer?

There are approximately 310,000 financial advisers in the US, and about 10% of them are RIAs. "Unfortunately, I uncovered a gray part of the law," Robbins said. "And of the 31,000 people that are RIAs, literally 26,000 of them, so the vast majority, are what we call dually registered. That means they're a broker and they're an RIA."

To see if your adviser can switch hats, Robbins recommends looking at the adviser's website and seeing if there's a sentence like, "Securities offered through [adviser's company name], member FINRA [Financial Industry Regulatory Authority] and SIPC [Securities Investor Protection Corporation]."

3. 'Does your firm offer proprietary mutual funds or separately managed accounts?'

"You want the answer to be an emphatic no," Robbins writes of the two products, which are less transparent and potentially more expensive than a typical mutual fund.  "It probably means they're looking to generate additional revenues by steering you into these products that are highly profitable for them (but probably not for you)."

In a conversation with Mallouk recorded last year, Mallouk noted that it becomes an easy choice to offer your firm's proprietary mutual funds to your clients when you'll be getting an extra commission, especially when you know the people managing those funds.

Separately managed accounts are alternatives to mutual funds for wealthy individuals, and they do not come with prospectuses, meaning clients need to perform their own due diligence. If you're not a sophisticated investor who specifically wants this approach, you're better off steering clear. 

4. 'Do you or your firm receive any third-party compensation for recommending particular investments?'

"This is the ultimate question you want answered," Robbins writes. "Because you need to know that your advisor has no incentive to recommend products that will shower him or her with commissions, kickbacks, consulting fees, trips, or other goodies."

5. 'What's your philosophy when it comes to investing?'

Robbins and Mallouk recommend avoiding high-risk investments for the average investor, but however you want to invest your money, you need to understand how it's being invested.

6. 'What financial planning services do you offer beyond investment strategy and portfolio management?'

You may only need investment help at your particular stage in life, but you should consider where you want to be headed.

"Ideally you want an advisor who can bring tools for tax efficiency in all aspects of your planning — from your investment planning to your business planning to your estate planning," Robbins writes.

7. 'Where will my money be held?'

"A fiduciary advisor should always use a third-party custodian [like Fidelity or Schwab] to hold your funds," Robbins writes. "You then sign a limited power of attorney that gives the advisor the right to manage the money but never to make withdrawals."

This allows you to switch advisers whenever you'd like without having to move your accounts — and it also helps you keep from falling victim to a con man!

Watch the full Facebook Live »

 

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