A woman I know once said something to me that I think about every day: “I’m tired of supporting businesses and institutions that haven’t supported me. I no longer want to have my money managed at a company at which I wouldn’t want my daughter to work.”
That hit me, hard. And I couldn’t agree more.
So what does that look like — in an industry in which 86% of financial advisors are men? What are the questions we should be asking so that we can dig deeper, find out if our values align, see whether an advisor will truly support us?
Here are seven of them.
What does your team look like?
Most will lead with their “commitment to diversity.” But the proof is in the executive team, so to speak. If they say they’re all about diversity, but the people who lead the firm or look out for their clients’ best interests all look the same, then their “commitment” doesn’t hold much water, does it?
Diverse leadership isn’t just something that sounds good. It isn’t even that it’s the “right thing to do” (although, of course, that’s true). No — diversity is the lifeblood that allows a firm to look out for your best interests. Research has shown that greater diversity allows a company to better understand and meet the needs of its customers. In fact, the financial services industry has historically scored so poorly in this department that it could be costing firms a collective $5 trillion in missed business from women. Yeah.
And while we’re here: Any info on how much their firm pays women compared to men? They may not know, or they might assure you that their company would never pay women less for the same work. But the truth is that according to multiple studies, women financial advisors face the biggest pay gap of any occupation.
How does your firm handle sexual harassment?
More specifically: Do you require your employees to settle sexual harassment claims through confidential arbitration?
As of 2018, more than 55% of employees in the US (that’s an estimated 30 million women) had confidential arbitration clauses in their employment contracts. That means if a woman were to report sexual harassment, she’d be forced to seek damages privately, behind closed doors, instead of taking the case to court — which protects both her employer and the person she accused from public scrutiny. (Ew.)
Arbitration has proven to be good for companies — and bad for women. Research shows that when companies force arbitration on their employees, those companies are more likely to win the case, and they tend to have to pay less in damages.
The good news is that the #MeToo movement (and some high-profile scandals — looking at you, Google) have helped bring to light just how many companies were doing this. Some politicians are pushing to end the practice — but there’s still a way to go on this one.
Does your company or leadership team fund politicians?
And if yes, which ones? The person you’re talking to might not know the answer to these questions offhand, but we’re willing to bet they can find out for you. (And you can also look yourself at the Federal Election Commission’s public records.)
The people and policies the firm’s leaders and investors support might say a lot about their values. And if their values don’t align with yours, can they do a good job of truly representing your interests? Plus … do you really want your dollars contributing to their politics?
Can you help me invest in things I care about?
This could include gender-lens investing: putting your money into investments from companies that work to address gender disparities. But impact investing could also include investing to support the causes you are passionate about. Like sustainability. Or gun control. What have you.
Your investment advisor should be able to help you work that passion into your investment portfolio. Because money is powerful, and the ways we use our money have a lasting effect on the world around us.
Are you a fiduciary?
This one should be a deal-breaker.
A fiduciary is someone who is legally obligated to put your interests ahead of their own. You may be wondering: Shouldn’t that be anyone handling my money? Yes. Yes, it should. But that’s not how it works in practice.
Registered investment advisors (also called RIAs, like Ellevest) are regulated by the SEC and held to a fiduciary standard. They have to give investment advice that’s in your best interests — always. They also have to disclose conflicts of interest and be transparent with you about things like how much they charge.
Some other financial professionals, though, are only held to a suitability standard. That basically means they can recommend any investments to you as long as they “reasonably believe” that the investment will fit your needs. Theoretically, this standard might mean that your advisor could recommend “suitable” investments that will help them make more money — even if they’re not the best investments for you.
Does your firm sell its own investment products?
Many investment advisory firms own some of the investment products that they sell to their clients — because these in-house investments tend to be more profitable (for them).
A “yes” here might be OK if those products are priced competitively and truly meet your needs as an investor. But follow this “yes or no” question with another question about how much those products cost — and whether the advisor is required to pitch those products to you first, before showing you other options.
Again, you want to feel sure that your advisor is showing you the best possible options for you, not the best options for the firm.
What are all the ways you get paid?
Investment advisors will charge you a fee in exchange for their services, which is often called the advisory fee. But other financial professionals might also charge you extra fees on top of that based on the investments they’re recommending for you. The biggest one to look out for are commissions — also called “loads.” They directly compensate the person who sells you the fund, and are often 3–6% (although they can legally be up to 8.5%) on top of everything else.
That not only costs you (potentially a lot of) extra money, it also incentivizes the advisor to recommend investments with higher loads — which may or may not be in your best interest. Oh, and by the way: It’s possible in the investing universe to avoid loads altogether. So ask them to lay out and explain all the different types of fees you might be charged if you invest with them.
The answers to these seven questions should make you feel like your investment advisor is aligned with your values and will understand what’s important to you. If you don’t feel that way, it’s time to consider a change.
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