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Finding a financial advisor who is right for you is an important process.
Just like with any working relationship, it’s a good idea to interview advisors until you find the one who is the best fit for you, your life, and your financial goals. If you are entrusting your financial well being to someone, shouldn’t you get to know them, and their investing philosophy, first?
Before you speak to potential advisors, take a moment to review and understand where you are in your life, and your current needs and goals. Are you looking for support with saving – or planning – for your children’s education, with retirement, with saving for your next home, with investment choices and diversification, with how best to handle an inheritance or other windfall? Knowing what you want out of a relationship with your financial advisor – and what your current priorities are – is a good place to start the conversation.
The next step is making sure your needs and preferences align with your potential advisor.
Here are the top 10 questions you should ask a potential financial advisor:
1. Are you a Fiduciary?
Advisors generally fall under one of two categories: those who manage assets acting as a Fiduciary and those who advise clients acting as a Non-Fiduciary. A Fiduciary is regulated by Federal law and must adhere to strict standards: they must act in the client’s best interest, and in good faith, and they must provide full disclosure regarding fees, compensation, and any current or potential conflicts of interest. An advisor at a Non-Fiduciary firm generally earns compensation through commissions on the sale of specific investment products and is not regulated by the Federal law mentioned above. Non-Fiduciary advisors are governed, however, by a suitability standard as well as by applicable securities laws and regulations.
2. What is your fee structure?
Ask your financial advisor to clearly specify their fees. With many layers of diversification that can be applied to your portfolio, you want to be aware of whether you are exposed to up-front charges, back-end fees, expense ratios, and/or whether a percentage of your returns will deducted.
3. What credentials do you have?
Ask questions about the financial advisor’s prior experience as well as what licenses, registrations, and certifications they hold. Financial advisors can be either Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs). An RIA is registered either with the Securities and Exchange Commission (SEC) or state securities authorities and must adhere to a fiduciary standard defined by the Investment Advisers Act of 1940 . An IAR can provide investment related advice on topics on which they have passed the appropriate examinations and make investment recommendations based on suitability for the client. Ask if they hold an MBA or a CFA although, according to wealth manager, blogger, and CFA Ben Carlson , while a degree shows initiative and the fact that you’re improving your skills and enriching knowledge base, “no one needs either of these to succeed in portfolio management” and “neither matters if you don’t know how to apply them to what you’re doing.” Bottom line: meet the advisor in person, check references, and do your own due-diligence on the internet.
4. What services do you or your company provide and what makes your services unique?
A financial advisor should be able to tell you their strengths and what sets them apart. Some advisors provide advice on investments, for instance, while other specialize in comprehensive financial planning around retirement, insurance, estate planning, and tax planning.
5. What is your investment philosophy?
Every financial advisor has a specific approach to planning and investing. Some advisors prefer actively managed funds versus passive investments. Others may seek to gain high returns and make riskier investments. Make sure your goals and risk tolerance align with the advisor’s philosophy.
6. What type of clients do you have?
Are there particular areas of focus that they specialize in? What is their niche and how will you fit into that? Some financial advisors only target high net-worth individuals, for instance, while others may have areas of specific interest such as domestic planning (marriages or divorces,) and still others may focus on charitable giving or specific kinds of investments, such as socially responsible companies.
7. What is your relationship with your clients?
Ask how involved they are with their client’s portfolios: how hands-on their approach is and how available are they for their different clients’ needs.
8. Will I be working with you directly or with members of your team?
If the financial advisor does not work directly with all of his or her clients, make sure you know that ahead of time. Meet the rest of the team, ask the same questions, and make sure you are comfortable with all the people you will be working with.
9. How personalized are your recommendations for your clients?
It is important that your financial advisor tailors your financial plan to your specific goals. Your retirement plan and investment strategy should be customized to take into account your risk tolerance as well as age, income, net-worth, etc. There should not be a one-size-fits-all approach to managing your money.
10. How often do you review and evaluate each client’s portfolio and provide up-to-date assessments?
Make sure you are aware how often the financial advisor reviews your investments and if the time structure is right for you.
If you ask these 10 questions, you’ll have a much clearer idea of whether a Financial Advisor understands you and your goals, and is going to be a productive partner in helping you work to reach those goals.
Finally, do not hesitate to ask for a sample financial plan and a written agreement of the services that will be provided. There are wide variations of structures for financial plans and, if there is something you need clarification about, ask the advisor before you get started.