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. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 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
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