Five questions you should ask when choosing a financial advisor
Asking someone to manage your lifetime savings and make crucial investment decisions that affect your financial future can be a trying experience.聽You might be wondering, what questions should I ask?聽How do I know whether the person is qualified?聽What if I choose the wrong person?
Taking all that into account, I鈥檓 recommending five questions to ask when you鈥檙e checking out a financial advisor. The responses you get should help you make the right decision.
Are you a fiduciary?
The fiduciary vs. suitability standard has been a popular topic in the media lately, but the primary point is that a聽聽puts the client鈥檚 interests first at all times.聽It鈥檚 rather sad that this question needs to be asked at all. But the fact is that some advisors work for you and some work for their broker dealer.聽I believe wholeheartedly in the fiduciary standard and that is why I decided to become a registered investment advisor and a certified financial planner.
What are your credentials?
Just as you would with a physician or attorney, it is prudent to ask about the advisor鈥檚 experience, professional designations and background. All of this can also be found online on the advisor or firm鈥檚 form聽.聽A good starting point would be to ask advisors whether they have their certified financial planner or CFP designation.聽Certified financial planners are held to a fiduciary standard and required to meet a number of strenuous聽, including the passing of a comprehensive, two-day board exam.
Whom do you work with?
If you have back issues you would see a chiropractor, not a general practitioner.聽If you need to establish a trust you would see an estate planner, not a defense attorney.聽The point is that it pays to work with a specialist.聽I work with families to help them develop college planning and income sustainability strategies. This works out well because I am passionate about these topics, can relate to them and have experience in dealing with these situations.聽Some planners work with everybody, but like the old saying goes, 鈥淛ack of all trades, master of none.鈥�
What are the total costs for your services?
With cost being one of the primary determinants of future investment performance, it鈥檚 imperative to ask the total cost of doing business. This includes the advisor鈥檚 asset management fee, any commissions and the internal expenses tied to the actual investments and/or product.聽Most prospects I talk with are surprised to realize that they鈥檙e paying high, upfront commissions, over 2% in ongoing costs and receiving little value in return.聽This is another reason to work with a fiduciary.
What are your services and investing philosophy?
Some advisors specialize in asset management services and others incorporate comprehensive financial planning.聽If they offer asset management services, have them explain their investment philosophy and process.聽Do they believe in a buy-and-hold strategy or do they employ a more active approach?聽Ask them to walk you through their planning process.聽Do they utilize a proactive or reactive approach?聽Will they reach out to you to take advantage of changes in the tax code or mortgage rates? You need to find an advisor you鈥檙e comfortable with and suits your needs.
My son recently had a homework assignment that included asking me questions about my profession.聽One of his questions was, 鈥淒ad, how do people know which advisor they should work with?鈥� That hit home and prompted me to write this blog.聽I figured if he was thinking about it, there was a good chance others were as well.
I hope these five questions help you find a financial advisor who鈥檚 right for you.
