So, you think that you would like to hire a Financial Advisor? Just knowing that you could use some help accomplishing your goals is a great start.
Are you leaving a job either by choice (such as retirement), or not by choice (such as a downsizing or an early retirement package offer), and are wondering what that means to your finances?
Have you been saving for years and starting to think about the next phase of your life, like retirement? You might be asking, “Do I have enough?” or “How much can I spend?”.
Maybe you are already with an advisor and have been for many years and looking for a change. Perhaps you think that the advisor is taking you for granted and you are not getting the attention that you deserve. Maybe the results have been lackluster.
Here are some questions that you should ask a potential financial advisor. Do not be afraid to ask these questions, even if they seem intrusive.
Are you a Fiduciary?
Being a Fiduciary means that you put your clients’ interest ahead of your own. That seems kind of strange that someone would even have to ask that question, doesn’t it? Being a Fiduciary is a higher standard of care. The reality is that the Financial Services industry is dominated primarily by financial salespeople. They are selling products to you that earn them a commission. The product may be appropriate for you, but that could have an influence on why it is being offered to you as a solution. Does the advisor have the freedom to choose the best solution for a client, or a limited number of in-house products and solutions?
How do you get paid?
Do not be afraid to ask how an advisor gets paid. I always welcome the question. Ask if they earn commissions on products that they sell. If so, how much? Ask if they get paid differently depending on what product they choose for you. Ask to see a copy of the Firm’s Customer Relationship Summary, which is designed to answer this question in plain English. If you want an in-depth understanding of the Advisor and/or his or her firm, ask for a copy of their ADV brochure. There are a number of compensation models out there: commissions on transactions, salaries, or flat percentage fee for assets under management (AUM). There also may be a combination. Ask if they have quotas, goals or contests. If an advisor’s desk is covered with company trophies, ask what they did to earn them. You should want your advisor to get paid well, but it should be a compensation model that you agree with.
What are my all-in costs?
What does it cost to be a client of the advisor? Do I need to have my assets managed by you to be a client? How much does that cost? What are the underlying fees (such as mutual fund expenses, commissions or transaction costs)? Can we work together on an hourly fee basis? Some advisors offer this for as-needed advice. What if we are not happy and want to leave the advisor altogether? Most investments or managed accounts are liquid within a short period of time. If the advisor has placed your money into an insurance product such as an annuity, it may be very expensive to unwind it if you are not happy, and you may be stuck for a number of years.
What are your qualifications?
Are you qualified to provide the advice that I need? You will have to judge this based on years of experience, education and certifications. Some financial planners will have their CERTIFIED FINANCIAL PLANNER® certification, which is the Gold Standard in the Financial Planning industry. This indicates that they have gone through extensive courses on 6 different financial topics and passed a comprehensive exam to earn the right to use the marks (You can look at their website for more information. https://www.letsmakeaplan.org). That being said, there are plenty of great and experienced financial planners who have not pursued the CFP® certification. It is also good to know who the typical clients are that they work with. If an advisor normally works with young professionals starting out and you need help with pre-retirement planning, they may not be a good fit.
How will our relationship work?
This question will let you know what the relationship is going to look like. How many times will we meet? In the first year? 2nd year? After 5 years? Will my relationship be with the primary advisor, or will I be “transitioned” to someone else once we have implemented the plan? It is important to know the different channels of communication. Your advisor probably is not the right person to call with an address change or question about your statement. It is good to find out who is the right person or team to call up front for service issues, or planning questions.
What is your investment philosophy?
Ask a prospective advisor what their philosophy is. Are they a market timer? Do they believe in the principles of diversification? Do they prefer stocks and bonds or mutual funds and ETF’s? Not everyone is a reader, but asking an advisor what financial books they might recommend may give you some insight into their philosophy.
What asset allocation will you use?
Some advisors use software to determine your appetite for risk. Some will use a good old fashioned questionnaire. However they do it, it is good to know the process up front. There is amazing financial software in the industry that may suggest a certain allocation depending on your time frame, appetite for risk and income needs. Ask how they use technology to come up with an allocation.
These are just a few of the questions that may be helpful in sizing up a prospective Financial Advisor. This is a very important decision to make for you and your family. There are many great high-quality advisors out there and you need to find a great fit for you. People do business with people that they like. You can find more details about any potential advisor at http://adviserinfo.sec.gov.