What important questions should clients ask their advisors about their mutual funds?
There are a variety of smart questions clients should be asking during their year-end review regarding their mutual funds. The first one should be what (if any) capital gains can I expect from my funds? Taxes play a large, but sometimes overlooked, part of a client’s investment strategy. With the recent market upswing, more funds have been paying capital gains than compared to a few years ago. In addition to capital gains, they may want to ask if there are any tax loss harvesting opportunities available. This is a great question because it may help offset any gains.
Another question clients may want to ask is if there is a cheaper share class available to them. Some clients may be able to convert share classes to a less expensive option if the fund families allow it. We have been practicing share class conversions for a few years now, especially for some of our new clients coming from another financial advisor. For example, a client may have an "A" share class or "C" share class that may be able to convert to an "Institutional" or "Investor" share class. The client may receive a less expensive share class and there is no tax consequence in doing so when done properly.
Finally, the other question they may want to ask is if their mutual fund is still in line with their financial goals. You can have two funds within the same category with very different risk profiles. If the client has held the same fund for a long period of time, does it still fit their goals?
Being prepared with the proper questions will be beneficial to the client, the advisor, and in return... the portfolio. Do you know what questions you will be asking at your end of the year review?