Discover the top 10 questions you should ask a financial advisor to ensure they're the right fit for your financial goals and needs.
Managing personal finances can be complex. Having the guidance of a financial planner or advisor can not only streamline this process but also provide the peace of mind that comes from knowing you're on the right track for your financial goals. However, it's crucial to find someone who understands your goals and values. So, how do you find a trusted advisor? What do you ask? Knowing this information and following through on it can save you a lot in your time and money.
Before you even set up a meeting with a potential advisor, it's important to do some background research. Look at their social media profiles, listen to their podcasts and read their blogs. This will give you a sense of their approach and whether it aligns with your needs.
Also, use professional resources to verify their background and credentials. Websites such as the Financial Industry Regulatory Authority (FINRA) or the U.S. Securities and Exchange Commission (SEC) provide valuable information about registered brokers, brokerage firms, investment advisors, and other financial professionals.
Want to make sure they are focused on you and not solely on your money. They shouldn’t be pressuring you to do anything. Focused on education so you understand what is going on and be committed to lifelong learning.
Will they always put you ahead of their own needs? This refers to whether the advisor is legally obligated to put your financial interests first, or if his first allegiance is to a firm. Clarify do they do this all the time.
Unfortunately, most of the responses will be, ***“*No!” And that’s because most advisors are “dually registered” (a.k.a. fee-based). A “dually registered” (or fee-based) advisor can take their fiduciary hat on and off. In other words, they are NOT a fiduciary 100% of the time.
One day, they are a fiduciary putting your interests first; the next, they sell you an insurance product with hidden fees and commissions.
Example, of a fiduciary oath you could ask the advisor your interviewing to sign to make sure.
You should check out a financial advisor's professional designation before you hire them. Look them up here. A Certified Financial Planner™ or CFP® is arguably the highest designation. Overall, there are hundreds so it can get very confusing and frustrating as well as many of them don’t mean much.
In addition to their designation, ask them about their reading, their required [continuing education](https://www.cfp.net/career-and-growth/continuing-education#:~:text=CFP® professionals are required,effective immediately upon initial certification.), etc.
A CFP® Professional must adhere to strict ethical standards, complete a series of rigorous coursework and exams, have at least three years of financial advisory experience, and have a four-year college degree.
Ask what they have experience in and see if it relates to what you are looking for.
Some examples of responses that could be are:
The answer you are looking for is only by the client. Looking for fee-only advisors.
There are several ways in which financial advisors can be paid:
Other fees include:
A true fiduciary will be transparent about those other fees noted above and should be choosing the lowest cost option among those as well. Here you want them to not only tell you what you are paying them for your service but also what the fees are within the investments they are recommending (e.g. the expense ratios) and also if they are charging any commissions or getting any referral fees.
For example, if your between looking at two different mutual funds at one charges over 1% like that of RYSOX or one that charges less than a tenth of a percent like that of VTSAX you would want the true fiduciary that is going to put you in VTSAX and if you are in something like RYSOX they would recommend you move out of that into a less expensive of an option and help you do so.
Review the advisor’s Form ADV and CRS for a detailed breakdown of their fees and services. These documents are publicly available, and every SEC-registered financial advisor must provide you with copies.
There are two approaches here: see what they cover compared to your needs OR show them your needs and see what they will cover.
Examples of what financial advisors do for their clients:
Examples of what financial advisors don't do for their clients:
You need this to be a mutually beneficial relationship that has trust on both sides. They should explain the onboarding process and how they will also serve you. Describing when and how often you will meet, what they will deliver for you, and what they expect from you.
Depending on what is answered in the first question and also to a degree the more you pay the more face-to-face time you should have. Will you meet virtually, in person or up to you. When and how can you contact them.
The risk should be aligned with your goals and objectives. What is the money going to be used for and when? For example, just because someone is older and in retirement doesn’t mean they will have 50% in bonds because maybe a good portion of their portfolio is for their heirs or a cause they believe in so the time horizon is beyond their life expectancy. In a nut shell its not a one-size fits all approach. Before selecting a proper asset allocation they should get to know you.
The actual number here is not as important as what explanation they provide. No one should be promising you a high number. The explanation could be around what long-term returns have shown in the past.
While knowing that investments are one aspect of financial planning you want to know how they are going to invest your money.
Here you are trying to get a glimpse into their knowledge on investing and you can also ask what you think about market timing and a index vs active portfolio if they didn’t say it within their explanation. Will they invest in Exchange-Traded Funds (ETFs), mutual funds, individual stocks, gold, private REITS, alternative investments, etc.)
Around their investment philosophy you can follow it up with questions around:
Some custodians that an advisor may say could be Schwab, Altruist, Fidelity, or Pershing. There are some others but you want to make sure that they are working with a trusted third-party custodian where they have limited authority on what they can do with your investments and accounts. You should be able to have online access to your accounts and to receive statements.
This is the time to ask about any complaints you found about the firm or the advisor on the FINRA website, the SEC website, or the Better Business Bureau.
With you reading this blog by now I am sure that you are aware that there are many types of financial advisors each providing a slightly different service with different compensation models. To learn more about some different types of financial advisors encourage you to listen to a podcast episode we did on this.
Click to listen Different types of financial advisors
Choosing a financial advisor can be one of the most important decisions you make in your financial life. Ideally you want someone you can work with for many many years.
With that don’t hesitate to ask some of these questions and others that you come across. The right advisor will be glad to answer your questions and help you find the right firm for you and your family.