plain talk How to Select A Financial Adviser ®

plain talk
®
How to Select
A Financial Adviser
Why Plain Talk?
At The Vanguard Group—a leading proponent of investor education in the
mutual fund industry—we believe that knowledge is one of the keys to
investment success. To that end, we have developed our Plain Talk Library,
a series of candid, concise, and easy-to-understand publications on a wide
variety of investment topics.
To request a free copy of any of these brochures, call us at 1-800-662-7447 on
business days from 8 a.m. to 10 p.m. and on Saturdays from 9 a.m. to 4 p.m.,
Eastern time. You can also read or order them online at www.vanguard.com.
We hope you find the information in the Plain Talk Library helpful as you chart
your investment course with us.
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Mutual Fund Basics
The Vanguard Investment Planner
Women and Investing
Financing College
Preparing to Retire
Investing During Retirement
Estate Planning Basics
How to Select a Financial Adviser
Measuring Mutual Fund Performance
Bear Markets
Bond Fund Investing
Index Investing
International Investing
Taxes and Mutual Funds
Dollar-Cost Averaging
Why Vanguard?
How to Select
A Financial Adviser
M
any people feel comfortable making financial decisions on
their own, perhaps with the help of books on personal
finance, online calculators, or financial planning software.
Others choose to meet their goals by seeking professional financial help.
A professional adviser can often help people who:
■
Lack the time or expertise to handle their own financial matters.
■
Face changed circumstances—perhaps because of marriage, the birth
of a child, an inheritance, a divorce, a new job, the sale of a business,
or the receipt of a lump sum from a retirement plan.
■
Need explanations, advice, or reassurance from an expert to navigate
through the complexities and risks of the financial markets.
■
Want a second opinion about a financial plan that they have
developed on their own (or that another adviser has proposed).
Finding expert help need not be difficult. But it’s not a step to be taken
lightly, so you should devote some effort to the search. This brochure
frames the considerations involved by describing various types of advisers
and their credentials, then explaining the importance of how an adviser is
compensated. Finally, the brochure presents a method to help you choose,
and then work with, a financial professional who’s right for you.
All mutual fund industry data provided by Lipper Inc.
C O N T EN T S
Before You Begin......................................................................................................
Preparing for your search
Looking beyond titles and credentials
Understanding how you’ll be charged—and why it matters
1
How to Select the Right Adviser ...........................................................................
Developing an initial list
Narrowing the field
Interviewing the final candidates
Choosing your financial adviser
6
How to Work With Your Adviser............................................................................
Getting off on the right foot
Evaluating performance objectively
Considering a discretionary account?
Closing thoughts
9
How Vanguard Can Help ......................................................................................... 11
Worksheets to Help in Your Search...................................................................... 13
Worksheet 1: Evaluating personal recommendations
Worksheet 2: Getting the essentials
Worksheet 3: Making the final cut
B EF O RE Y O U B E G I N
Preparing for your search
A professional adviser analyzes your financial circumstances, prepares a
plan to meet your financial goals, and, sometimes, manages your investment
portfolio. He or she may be called a financial planner, an investment adviser
(who may also be known as an asset manager or a money manager), a “wealth
manager,” an accountant, a banker, an insurance agent, or a securities broker.
Because there are so many types of financial professionals to choose from, you
should ask yourself two key questions before you begin a search for an adviser.
■
What are my financial goals? You should define your financial goals, even
if only in a general way. You might find, for example, that you need a
comprehensive plan that will take into account cash management and
budgeting, investments, taxes, insurance coverage, and estate planning. If so,
you might consider a financial planner, a type of adviser who analyzes and
coordinates the many aspects of your financial picture. Such a comprehensive
planner often works with specialists such as lawyers, investment managers, and
tax and insurance experts who may be either on the planner’s staff or with
outside firms (including, for example, your own lawyer or accountant).
By contrast, the exercise of defining your goals might show that your focus
can be much narrower. Perhaps you need help only in one or two areas:
selecting investments, managing your portfolio, developing a retirement
plan, minimizing estate taxes, investing an inheritance, or handling a large
distribution from a retirement plan. A financial planner can help with any
of these. Or you can go to a specialist such as an investment adviser for
your investing needs or an accountant or tax lawyer for tax planning.
■
What do I expect from an adviser? An adviser can help you achieve
your financial goals in several ways. So ask yourself whether you want
one-time advice—or whether you’ll require ongoing financial planning
and guidance.
Also decide whether you want to handle some parts of your finances
yourself. For example, your adviser may recommend an investment
plan and then carry it out for you or recommend another firm that can
execute your plan. But you may decide to implement the investment
plan yourself (and save on fees).
1
❛❛
Most financial
advisors come to
planning from a
sales job. One of
the first things the
good ones learn is
to leave their sales
hat at the door.
❜❜
—Mary Rowland,
Best Practices for
Financial Advisors.
Being clear about your financial goals and the role you expect an adviser to play
will help you stay on track as you search for, and then work with, an adviser.
The steps of this process, described in detail later in this brochure, include:
■
Developing a list of potential advisers.
■
Narrowing your search to a handful of advisers.
■
Interviewing in-depth these “best” candidates.
■
Choosing the adviser best suited to your needs.
■
Working with your adviser, including evaluating his or her performance.
As you gather information, you’ll want to make sure you have a good
understanding of each adviser’s expertise and compensation arrangements—
the subjects of the next two sections.
Looking beyond titles and credentials
In your search for expert help, you will come across a variety of job titles,
including not only the title “financial adviser” itself but also titles such as
financial planner, financial consultant, or even account executive. However,
it’s important to keep in mind that anyone can use generic titles such as
these, regardless of his or her training or education.
You may also find yourself adrift in what has been called an “alphabet soup”
of credentials—CFP, CPA, PFS, CFA, and ChFC, for example. Focusing
on advisers who have credentials is usually a good idea because having a
professional designation suggests a commitment to the field based on some
combination of work experience, formal study (including passing qualifying
exams in their field), and continuing education.
But no professional credential or job title can guarantee the quality of an
adviser’s services or ensure that your needs will be met. Moreover, the primary
interest of some advisers may be to sell you a particular financial product rather
than to provide impartial guidance. So, in your search, look beyond job titles
or credentials by gathering other information to ensure that the adviser you
choose will be the right one for you.
The following explanations will help you thread your way through the bestknown professional credentials and the types of advisers who may hold them
(and some may hold more than one):
■
2
Certified Financial Planner ® (CFP ®). This designation is awarded by the
Certified Financial Planner Board of Standards to individuals who have
had at least three years of work experience in the financial planning field,
completed an approved course of study, and passed a two-day exam. The
training of CFPs, which focuses on financial planning, includes taxes,
investments, retirement planning, estate planning, and insurance.
■
Certified Public Accountant (CPA). This designation is held by business
accountants, some of whom specialize in personal tax planning and
preparation. To qualify for the CPA credential, they must pass a two-day
examination administered by the American Institute of Certified Public
Accountants (AICPA) and meet state licensing requirements relating to
work experience and, in most states, special academic work. CPAs may also
earn the AICPA’s financial-planning designation of Personal Financial
Specialist (PFS), which is awarded based on work experience in financial
planning and successful completion of a PFS exam.
■
Chartered Financial Analyst (CFA ®). This designation is awarded by the
Association for Investment Management and Research to investment
professionals who have worked in the investment industry for three
years and have passed each of three yearly exams involving securities
analysis and professional money management.
■
Chartered Financial Consultant (ChFC). This financial-planning
designation is granted by The American College of Bryn Mawr,
Pennsylvania. To obtain a ChFC, a candidate must complete an eightcourse curriculum and work in financial services for at least three years.
Many ChFC candidates are insurance agents who have also earned the
Chartered Life Underwriter (CLU), an advanced insurance credential,
from the college.
■
Registered Investment Adviser (RIA). This designation is neither an
indication of expertise nor a license to buy or sell securities. It merely
indicates that an individual, or his or her employing firm, was required
under federal securities laws to file (for a nominal fee) with the Securities
and Exchange Commission or a state securities commission for a license
to dispense investment advice.
■
Registered Representative. This designation is held by securities brokers
who have passed mandatory basic exams given by the National Association
of Securities Dealers, a regulatory body for the securities industry. Securities
brokers recommend investments for clients and execute client orders to buy
and sell securities such as stocks, bonds, options, and mutual funds.
❛❛
Always ask what
an adviser charges,
what the fees are
based on, and how
much your specific
job is likely to cost.
There’s nothing
indelicate about
these questions; no
professional will
blush at them.
❜❜
—Lynn Brenner,
Smart Questions to Ask
Your Financial Advisers.
Understanding how you’ll be charged—and why it matters
To judge the value of an adviser’s services, it’s important to understand how the
adviser is compensated and what the total costs are that you’re likely to pay.
Some costs may not be obvious—leading some advisers to promote their services
as “free.” Almost nothing is “free.” So it’s prudent to always ask for a detailed
explanation. If you don’t fully understand the compensation arrangement, probe
for more information until all the details are clear to you. A reputable adviser will
be completely open and forthright when discussing compensation.
3
Generally speaking, advisers are compensated through either commissions or fees.
Commissions versus
fees: Cautions
Commissions inevitably come with
potential conflicts of interest. A
commission-based adviser, for
example, might be motivated to
earn income by . . .
■
Recommending mutual funds
with sales charges (loads) when
equivalent funds that don’t pay
sales charges to advisers (noload funds) are available.
■
Encouraging frequent buying
and selling of securities to
generate commissions, even
though a buy-and-hold approach
is usually in an investor’s longterm interest.
■
Recommending certain
investments or insurance
products over others primarily
because of commission levels.
■
Commission-only advisers earn their income by selling financial products such
as insurance or certain types of mutual funds, or by executing securities trades.
■
Fee-only advisers earn their income through—as their name implies—fees
(based, for example, on an hourly rate, a flat annual or single-project
amount, or an annual percentage of assets).
But some advisers may receive income from both commissions and fees. (Some of
these advisers may therefore say their compensation arrangement is “fee-based,”
not to be confused with “fee-only” arrangements.) Other advisers will reduce their
fees by the amount of investment commissions they receive on products you buy
from them. Advisers may even be compensated through non-cash sales incentives,
such as free vacation trips.
Moreover, some compensation arrangements are subtle. Commissions on
mutual fund purchases, for example, aren’t always paid from a visible up-front
sales charge (load). Instead, a fund may use a portion of operating expenses to
pay commissions—that investors never see—to financial advisers. That’s why
you should review the expense ratio section of a fund’s prospectus. There,
the prospectus discloses whether the fund charges a 12b-1 fee, which it uses
to recoup marketing and distribution costs such as commission payments
to advisers.
In the case of insurance products, you typically won’t be told how much
commission (also called a load) that the agent or broker will receive from the
premium payments you make. You have to ask.
There may be other types of expenses as well—commissions on the purchases
and sales of stocks and bonds, for example, or legal fees for the drafting of
documents in an estate plan. When you talk to potential advisers, therefore,
ask about all the fees, sales charges, and other costs that you will have to pay,
both directly and indirectly.
Fee arrangements
Fee arrangements will differ depending on whether an adviser works with you for
a short period on a specific aspect of your financial situation, or works with you on
an ongoing basis.
■
4
One-time fee. An analysis of your income and insurance needs as you plan for
retirement, the development of an investment plan based on your financial
goals, and the creation of an estate plan that your attorney can then implement
are examples of specific, one-time analyses that an adviser can provide. The
costs of these analyses typically range from $500 to $7,500, although they could
run higher or lower. (You will have to update such a plan from time to time,
especially if your circumstances change.)
■
Ongoing fees. Advisers can also provide ongoing planning and guidance,
including managing money for you. Yearly fees, often based on a percentage
of assets under management, may be as low as 0.65% ($650 per $100,000) or
as high as 3% ($3,000 per $100,000) and may be based on a sliding scale
(the more assets managed, the lower the percentage charged).
Keep the following two points in mind as you evaluate adviser fees. Many
advisers charge minimum fees, which may simply be too high when you
consider the amount of assets you’ll be asking the adviser to handle for you.
(Some advisers may even decline your business if your assets aren’t high
enough.) And importantly, paying higher fees doesn’t necessarily get you better
service. A competent and trustworthy adviser whose fees are at the lower end
of the scale may be as good or better than a more expensive adviser.
A closer look at certain commissions
As with fees, you should look closely at commissions charged for products you
would purchase through the adviser. This is especially true for investments
because their costs directly reduce returns that end up in your pocket. Because
mutual funds are so widely held, we illustrate the point in the following examples
of fund investments.
■
Up-front commissions. A typical initial sales charge for a load mutual fund is
about 4.4%, or $4,400 per $100,000 invested. This means, for example, that
only $95,600 of $100,000 earmarked for a load mutual fund would be put to
work for you.
■
12b-1 fees. All mutual funds have operating expenses, but the expense ratios of
some funds are higher than others—and one reason may be that marketing (or
12b-1) fees are included in operating expenses. A portion of these fees may be
used to pay commissions to financial advisers. The average expense ratio for
funds that charge a 12b-1 fee is 1.56% (or $1,560 per $100,000), compared
with 0.79% ($790 per $100,000) for funds without these fees.
■
Different share classes. Because most investors hate to pay up-front sales
charges, many fund families now offer different classes of shares within a
fund. Investors can choose a class that carries an up-front sales charge that
reduces the amount initially invested. Or, investors can choose to invest the
full amount and pay a higher annual expense ratio that is designed to
provide commissions to the adviser year after year.
Fees versus
commissions:
Advantages
Fee-only advisers are almost
always preferable to commissionbased advisers. Don’t be thrown
off by charges that seem so
visible—and perhaps so high at
first glance.
■
The services of a fee-only
adviser may actually be less
expensive than “free” services
when you compare the fees with
the commissions you would pay
on investments recommended
by a commission-based adviser.
■
A fee-only adviser’s investment
recommendations are not
influenced by compensation
arrangements. The adviser has
no incentive to encourage
frequent trading of securities,
for example, or to favor load
funds over no-load funds.
■
Fee-only advisers typically
provide clients with a wider
variety of choices because
recommendations aren’t limited
to firms offering attractive
commissions on their
investment products.
Of course, many advisers recommend no-load funds—such as Vanguard’s—that
have low expense ratios and no 12b-1 fees. This choice allows you to keep more of
a fund’s returns. Indeed, the combined cost of the adviser’s fee and a low-cost fund’s
operating expenses could quite easily be lower than the ongoing operating costs of
the average mutual fund alone. So keep no-load and low-cost funds in mind as
you discuss investment options with your adviser.
5
H OW
TO
S ELE C T
❛❛
Interview your
financial experts
with the same care
and attention you
would if you were
talking to a doctor
who was preparing
to perform major
surgery on you.
❜❜
—C. Frederic Wiegold
(editor), The Wall Street
Journal Lifetime Guide
to Money.
THE
R I G H T A DV I S ER
Developing an initial list
Now you are in a good position to start the actual search. Begin by creating a list
of possible advisers. One approach is to ask for recommendations from friends
and relatives. But find out whether their financial goals are similar to yours, how
they use their advisers, and why they chose them; don’t ask only for names. (See
Worksheet 1, which includes questions you should ask, on page 13.)
But friends and relatives may lack the expertise needed to accurately judge
the quality of an adviser’s work, so consider checking with professionals
such as attorneys and accountants, too. Because they are concerned about their
reputations, their recommendations could well prove to be more reliable. You
can also obtain referrals from professional organizations; some of the major
groups are given below.
Additional sources are available but should be used with caution:
■
Other referral services. Various private organizations make available lists
of advisers. In addition, some personal finance magazines publish lists.
Check the requirements for listing by asking, for example, whether anyone
who pays can be listed and what standards, if any, have to be met.
■
Seminars. Many financial services organizations host seminars. Some of
these seminars are education-oriented, but most are simply a way for the
sponsoring individual or company to generate lists of potential customers.
Attendees do, however, get the chance to sample the style and credibility
of the adviser.
■
Articles or news appearances. A financial professional who is featured in a
publication or on a news clip may be excellent—or may simply be quotable.
Always check to ensure that he or she can meet your particular needs.
Organizations to contact for referrals
(These organizations may also be able to help with background checks.)
Contact for
information on . . .
Phone number
and web address
American Institute of Certified Public Accountants
CPAs who hold the
PFS designation
1-888-999-9256
www.cpapfs.org
Financial Planning Association
(formerly the International Association for
Financial Planning and the Institute of Certified
Financial Planners)
CFPs
1-800-282-7526
www.fpanet.org
National Association of Personal Financial Advisors
Fee-only financial
planners
1-888-333-6659
www.napfa.org
Society of Financial Service Professionals®
ChFCs and CLUs
1-888-243-2258
www.financialpro.org
Organization
6
Narrowing the field
As you identify candidates, gather enough information about each one to develop
a short list of advisers who you feel merit an in-depth review. This preliminary
screening is typically done by telephone. You should discuss the following.
■
Confirm that the adviser can provide the services you want, including any
that may require special expertise. (Some financial planners, for example,
may specialize in a particular client profile, such as family business owners,
doctors, executives, or professional athletes.)
■
Ask for a description of typical clients to see whether their assets, income,
and financial circumstances resemble yours.
■
Obtain personal and professional background information such as the
adviser’s education, years of experience, prior jobs, and credentials.
■
Determine whether the adviser is compensated by fees or commissions,
then review the fee or commission schedule, including any minimum fees.
If an adviser earns both, ask about the percentage of income he or she earns
from each source.
Interviewing the final candidates
Reviewing the results of your preliminary screening will produce a short list
of candidates to interview in depth either in person or by telephone. Note that
most reputable advisers won’t charge for this initial “meeting” and you won’t
incur any obligation, but be sure to ask.
❛❛
A good broker or
investment adviser
will welcome your
questions, no matter
how basic. Financial
professionals know
that an educated
client is an asset, not
a liability. They
would rather answer
questions before you
invest, than confront
your anger and
confusion later.
❜❜
—Securities and
Exchange Commission,
Ask Questions.
An efficient way to conduct this phase is to gather the same information on
all your candidates. Asking the same questions of everyone—see the suggestions
in Worksheet 2 on pages 14 through 17—makes it easier to compare answers
after you complete the interviews. Although you should ask for client
recommendations, an adviser may say no for confidentiality reasons.
Your goal at this stage of the search is to become more familiar with the
advisers’ services and the way they work with their clients, and to see how
comfortable you are with each adviser’s personal and professional style. And
for advisers who provide investment advice or portfolio management, you’ll
want to be sure you thoroughly understand their investment approach.
For example, will recommendations be based on a forecast of the economy,
of interest rates, or of the financial markets? This approach may result in
frequent portfolio adjustments—and possibly higher costs and tax effects—
as forecasts change.
An alternative approach draws on a client’s goals and risk tolerance to determine
the proportion of funds to invest in different asset classes, such as stocks and
bonds. The idea is to develop a diversified portfolio that requires only occasional
adjustments, regardless of the ups and downs that continually occur in the
financial markets.
7
❛❛
Never be ashamed
of asking tough but
polite questions.
The people you are
questioning typically
will have more
respect for you, not
less. If they refuse to
give you answers,
leave in a hurry.
If you do not
understand their
answers, ask for
clarification.
❜❜
—C. Frederic Wiegold
(editor), The Wall Street
Journal Lifetime Guide
to Money.
Documents to request
Be sure to get in writing a description of the exact services that you will receive
and the total costs. Also request samples of the adviser’s work, such as a typical
financial plan, investment performance report, statement, or client newsletter.
You’ll want to evaluate these documents for how user-friendly they are.
Form ADV: An important disclosure tool
If the adviser you’re considering is a registered investment adviser (described
on page 3), another important document to get is Form ADV.
Request a copy of Part I from the adviser. In it, you’ll find any court or
regulatory actions the adviser has been involved in. Part II—or a brochure
that summarizes the information in Part II—must be given to new clients and
offered to continuing clients each year. The disclosures encompass compensation
arrangements, types of clients and investments, affiliations with financial services
companies (a clue to potential conflicts of interest), and the education and
business background of key staff members.
The complete form is available from the Securities and Exchange Commission
for advisers who manage $30 million or more, and from state regulators for
advisers who manage less than $30 million.
Choosing your financial adviser
It’s time to compare the information you’ve received from your candidate
interviews. The questions in Worksheet 3 on page 18 will help you put the
results of your research in perspective.
Your final task is to conduct a background check—no matter how distinguished
an adviser may seem. A background check can verify credentials and uncover
complaints or public disciplinary actions. Professional organizations and
regulatory agencies that provide this information without charge are given below.
Organizations to contact for background checks
8
Organization
Contact to . . .
Phone number
and web address
Association for Investment
Management and Research
Verify CFA designations
1-800-247-8132
Certified Financial Planner
Board of Standards
Verify CFP credentials and
disciplinary history
1-888-237-6275
www.cfp-board.org
National Association of
Securities Dealers Regulation, Inc.
Check credentials and disciplinary
history of brokerage firms, brokers,
and other registered representatives
1-800-289-9999
www.nasdr.com
Securities and Exchange Commission
(or your state’s securities commission)
Get registered investment advisers’
Form ADV
1-202-942-8090
Your state’s securities commission,
insurance commission, or board of
accountancy
Check on licensing and disciplinary
actions
—
H OW
TO
W O R K W I T H Y O U R A DV I S ER
The adviser you choose should develop a clearly written plan for you, based on
your financial objectives and including explanations you can understand. If the
adviser is to provide ongoing advice, agree beforehand how frequently he or she
will monitor your financial plan and provide status reports. And if the adviser is
to manage your investments, be sure to evaluate results objectively.
Getting off on the right foot
Here are some ways you can ensure a successful relationship with your adviser
from the start.
■
Be open and honest about your financial situation.
■
Include your spouse, and other appropriate people, in all discussions and
decisions.
■
Be sure your goals are realistic. This includes planning over an appropriate
time period—for instance, not using stocks (a long-term investment vehicle
because of potential short-term volatility) to finance an immediate goal.
■
Review progress toward your goals regularly (annually at a minimum) and
whenever a significant change occurs in your life.
■
Monitor investment performance regularly, but don’t be put off by shortterm results. Less-than-stellar investment returns may simply reflect the
state of the financial markets, not poor performance by your adviser. Allow
adequate time to fairly evaluate your adviser, generally one to two years.
■
Understand the pros and cons of giving your adviser discretionary control
over investment assets (see page 10).
❛❛
Never invest in
a product that
you don’t fully
understand.
❜❜
—Securities and
Exchange
Commission,
Invest Wisely: Advice
From Your Securities
Industry Regulators.
Evaluating performance objectively
You should carefully review the periodic performance reports you receive from
your adviser, but don’t succumb to the temptation to alter your investment plans
because of short-term market swings. What counts is performance over the long
term. In addition, you should:
■
Expect personalized performance to be presented over several time periods.
■
Compare investment results with relevant market indexes. (A fund with a
20% gain could actually be underperforming if, for example, its benchmark
appreciated by 30%. Similarly, a 5% loss would be very good if the
benchmark fell by 10%.)
9
❛❛
■
If you’ll be relying
on the adviser
for investment
suggestions . . .
be sure the two
of you share the
same investment
philosophy. [Ask
your advisers] to
walk you through
their fund- or
stock-selection
process, and to
thoroughly explain
what would make
them sell a stock
or fund.
❜❜
—Susan Dziubinski,
www.morningstar.com.
Make sure that performance information provided on your statement is
shown both before and after all money management and transaction fees
have been deducted.
For information about evaluating mutual fund results, request Measuring Mutual
Fund Performance, another brochure in Vanguard’s Plain Talk Library.
Considering a discretionary account?
Many people give their advisers the right to buy and sell securities for them in
what’s known as a discretionary account. They do so for two good reasons: to take
advantage of professional management and to reduce the time they have to spend
on their investments.
You should understand, however, the exact nature of the authority you’re granting
to the adviser. Give your adviser authority to trade securities for you only if:
■
Your adviser is paid by fees. This avoids conflicts of interest.
■
You monitor your adviser to make sure that he or she doesn’t depart from
the agreed-upon investment plan. (A good adviser will alert you if there are
significant changes and will explain them to you.)
■
The exact nature of the authority you’re granting is clearly stated in a
contract between you and the adviser. The discretionary authority should
allow the adviser only to trade securities for you and not to withdraw funds.
Closing thoughts
As you work with your financial adviser, don’t be afraid to ask questions—
no matter how simple or tough they may seem. You’re paying for the answers.
And even if you’ve already paid for his or her services, don’t be afraid to drop
your adviser if you feel the relationship isn’t working.
Remember: It’s your money, and you’re the boss.
10
H OW VA N G UA RD C A N H EL P
Vanguard offers a broad range of programs—including financial planning,
investment management, and trust services. All of our financial services are
provided by salaried professionals who receive no commissions and who,
therefore, have no incentive to promote specific investments.
For more information anytime,
visit our website at
www.vanguard.com.
Vanguard® Personal Financial Planning Service
1-800-567-5162
A Vanguard financial counselor can analyze your entire financial situation to
determine whether your investment, retirement, or estate preservation program
is on track—and then develop and help you implement a plan with solutions
tailored to your specific needs. The standard fee for each plan is $500.
■
Investment planning. We consider your entire investment portfolio, overall
financial circumstances, long-term goals, risk tolerance, and tax situation to
recommend strategic asset allocations and specific Vanguard® mutual funds.
■
Retirement planning. We provide detailed analysis (including projections of
your income and expenses) to ensure that you are on track to meet your
retirement goals. If you are already retired, we will project what you’ll need
to maintain your desired standard of living.
■
Estate planning. We will help you develop an estate plan to minimize taxes
and simplify the transfer of assets to your heirs. We can then work with your
attorney as he or she drafts the documents to implement the plan.
Vanguard® Asset Management and Trust Services
1-800-567-5163
A Vanguard professional can manage your entire investment portfolio, including
Vanguard and non-Vanguard funds and individual stocks and bonds. We also
offer a variety of trust relationships and complete trust administration services.
We can:
Vanguard’s fee schedule
for asset management and
trust services
Assets Under
Management
Annual Fee
■
Manage your assets according to your financial needs and objectives.
First $1,000,000
0.65%
■
Preserve the wealth you’ve accumulated by employing investment and trust
strategies that minimize the effect of income taxes and estate taxes.
Next $1,000,000
0.35%
Act as sole trustee, co-trustee, successor trustee, or agent-for-trustee.
Subsequent amounts
0.20%
■
■
Distribute assets and income as you intend, both during your lifetime
and after.
Fees are in addition to the expenses on
mutual funds in which you are invested.
Annual fees for our asset management and trust services are listed at right.
The minimum needed to establish an account is $500,000 in investable assets.
11
Voyager and Flagship
Services
Vanguard offers special services
for clients with substantial assets.
■
Voyager Service ®, for clients
investing more than $250,000 in
Vanguard mutual funds, offers
the expert assistance of a
special service team.
■
Flagship Service, for clients
whose Vanguard mutual fund
investments exceed $1 million,
offers personal service from a
dedicated representative.
Eligible clients are invited to
call us at 1-800-337-8476 for
more information.
The Vanguard Group invites you to discover the services we offer in addition to
our advice and guidance programs. We are confident that you will benefit from
the qualities that have established our leadership in the investment field—our
unique ownership structure, time-tested investment principles, low costs, and
responsive service.
1-800-662-7447
Vanguard® Mutual Funds
The Vanguard family of more than 100 mutual funds spans the entire spectrum
of investment objectives—so you can build a complete investment program,
whatever your financial goals.
1-800-992-8327
Vanguard Brokerage Services®
Through VBS®, you can invest in individual stocks, bonds, options, and more
than 2,600 non-Vanguard mutual funds. You can open an account and trade on
our website as well.
Retirement Resource Center
1-800-205-6189
Our experienced retirement specialists can provide a wealth of information to
help plan or manage your retirement investments.
Individual Retirement Plans
1-800-823-7412
Self-employed individuals and small-business owners can find out how to
establish and administer retirement plans for themselves and/or their employees.
Vanguard® Variable Annuity Plan
1-800-522-5555
For investors who can benefit from an annuity’s tax advantages, the Vanguard
Variable Annuity Plan offers a wide variety of low-cost investment portfolios
and a selection of payout options.
Vanguard.com™
Visit our website to obtain more information on our funds and services, learn
more about investing—even prepare a personal financial plan using interactive
tools and open an account online. Register for immediate secure access to our
online investment-management center, and you can monitor your accounts,
conduct transactions, trade securities, and invest in both Vanguard and nonVanguard funds—24 hours a day.
12
Worksheet 1: Evaluating personal recommendations
Friends and family can be helpful sources of adviser names, but an adviser relationship that works for someone else may not
work for you. Questions such as the following can help you weed out obvious mismatches.
Adviser 1:
Adviser 2:
Adviser 3:
Adviser 4:
Adviser 5:
Adviser 6:
Does the adviser clearly explain
recommendations?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Did the adviser disclose fees,
costs, and investment risks
up front?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Does the adviser provide an
itemized bill for services?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Has the adviser ever surprised
you after the fact with charges
or fees?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Does the adviser consider the
tax implications of investment
recommendations?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Does the adviser carefully
explain the personal
performance of your
investments?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Do you usually act on the
adviser’s recommendations?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Does the adviser react
negatively if you don’t take
his or her advice?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Is the adviser helping you meet
your financial goals?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Is the adviser responsive and
readily available?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Do you expect to continue
using this adviser?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
13
Worksheet 2: Getting the essentials
After you decide which advisers you want to interview in depth (whether in person or on the phone), ask detailed questions
such as the following:
Adviser 1:
Adviser business and background
■
What job experience and study was involved in getting
your credentials?
■
How do you keep current with the latest developments
in the field?
■
Do your credentials require you to subscribe to a
code of ethics?
■
How many clients do you have?
■
What is the maximum number of clients you feel you
can handle at a time?
Investment matters
How often have you helped clients whose investment
needs and risk tolerance resemble mine—and what has
your performance record for those clients been?
How would you describe your investment philosophy?
For example, do you make frequent portfolio adjustments
based on a forecast of financial market activity, or do you
most often stick with a buy-and-hold approach?
■
If I want to delegate the management of my
investments, can you or your firm manage them?
■
If you use outside firms, who are the investment
managers you work with?
14
Adviser 2:
Worksheet 2 (continued)
Adviser 3:
Adviser 4:
Adviser 5:
Adviser 6:
15
Worksheet 2: Getting the essentials (continued)
Adviser 1:
Day-to-day issues
Will you be my regular contact? If not, who will be?
How often will we “meet,” whether it’s by phone or
in person?
Will you be comfortable with how I’d like to approach
our relationship—if I want to check on my investments
frequently, for example?
Details
In addition to payments I make, will you receive
compensation from any other sources related to the
services or products I purchase through you?
■
Do you carry liability (errors and omissions) insurance?
■
What is the financial rating of the insurance company
underwriting the insurance?
■
Which institution holds your assets as custodian
[as a safeguard against theft]?
■
What is the financial stability of the custodian?
■
Who will generate my investment statements [a check
on whether recordkeeping is impartial], and how often?
■
Will you provide personalized performance reporting?
What’s involved—in terms of fee payments or refunds,
investment transfer issues, or advance notice—if either
of us severs the relationship?
16
Adviser 2:
Worksheet 2 (continued)
Adviser 3:
Adviser 4:
Adviser 5:
Adviser 6:
17
Worksheet 3: Making the final cut
Your final task is to pull together all that you have learned during your search. Important are both hard facts and other,
less-tangible factors.
Adviser 1:
Adviser 2:
Adviser 3:
Adviser 4:
Adviser 5:
Adviser 6:
Did the adviser show a
genuine interest in you—or
did you feel you were on the
other end of a sales pitch?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Did the adviser identify
issues you hadn’t thought of?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Do the services offered seem
appropriate to your needs?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Does the adviser handle
clients similar to you in terms
of assets, income, financial
circumstances, and goals?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Is the adviser’s investment
philosophy compatible with
yours?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Did the adviser discuss
issues clearly and candidly?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
Were you comfortable
sharing personal information
with the adviser?
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
❍ Yes
❍ No
18
Invest with a leader
The Vanguard Group traces its roots to the opening of its first mutual fund,
Wellington™ Fund, in 1929. The nation’s oldest balanced fund, Wellington Fund
emphasized conservatism and diversification in an era of rampant market
speculation. Despite its creation just before the worst years in U.S. financial
history, Wellington Fund prospered and within a generation was one of the largest
mutual funds in the nation.
The Vanguard Group was launched in 1975 solely to serve the Vanguard mutual
funds and their shareholders. From its start as a single fund in an infant industry,
Vanguard has become one of the largest investment management firms in the
world. Today, some $550 billion is invested with us in more than 100 investment
portfolios. And some 11,000 crew members now serve millions of shareholders
who have entrusted their investment assets—indeed, their financial future—to a
company that they believe offers the best combination of investment performance,
service, and value in the industry.
Post Office Box 2600
Valley Forge, PA 19482-2600
The Vanguard Variable Annuity
Plan is a flexible-premium,
multifunded variable annuity
issued by Peoples Benefit Life
Insurance Company, Form No.
Series NA100A (in Florida, Form
No. NA100A-FL; in Oregon, Form
No. NA100A-OR) and, in New York
State only, by AUSA Life Insurance
Company, Inc., Form No. AV423
101 109 498 CRT, without agent
representation. The Vanguard Group
administers the Vanguard Variable
Annuity Plan for its issuers.
Neither The Vanguard Group,
Peoples Benefit Life Insurance
Company, nor AUSA Life
Insurance Company, Inc.,
provides tax advice. Investors
are encouraged to consult a
tax adviser for information on
how annuity taxation applies
to their individual situations.
Vanguard Personal Financial
Planning Service is provided by
Vanguard Advisers, Inc., a
registered investment adviser.
Vanguard Asset Management
and Trust Services are provided
by Vanguard Fiduciary Trust
Company, which is established
under the laws of Pennsylvania.
Trust services may not be
available in all states.
Vanguard Brokerage Services
is a division of Vanguard
Marketing Corporation.
CFA ® is a trademark owned by
the Association for Investment
Management and Research.
CFP and Certified Financial
Planner are trademarks of the
Certified Financial Planner Board
of Standards, Inc.
Society of Financial Service
Professionals ® is a trademark
of Society of Financial Service
Professionals (PA Corp.).
World Wide Web
www.vanguard.com
Toll-Free
Investor Information
1-800-662-7447
Vanguard funds, non-Vanguard
funds offered through our
FundAccess ® program, and
the Vanguard Variable Annuity
Plan are offered by prospectus
only. Prospectuses contain more
complete information on risks,
advisory fees, distribution
charges, and other expenses
and should be read carefully
before you invest or send money.
Prospectuses for Vanguard
funds can be obtained directly
from The Vanguard Group;
prospectuses for the
Vanguard Variable Annuity
Plan can be obtained by
calling 1-800-522-5555.
Prospectuses for nonVanguard funds offered
through FundAccess can
be obtained from Vanguard
Brokerage Services®,
1-800-992-8327.
Printed on recycled paper.
© 2001 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
BSFA 042001