Are you looking for an advisor overwhelmed by the sea of people that are out there? Or, are you currently working with an advisor and not sure if they are still the best fit for you?
Here is a list of ten questions to ask:
1. Are you a fiduciary?
A fiduciary is required to act in your best interest. There are many other advisors that are held to a lower standard – notably, the suitability standard. Suitable means it must meet certain criteria that suit things such as your risk tolerance and time horizon; however, they may recommend investments that are not most ideal due to being compensated more for certain products.
Also, make sure the advisor is required to act as a fiduciary at ALL times. Some advisors can “switch hats” depending on how they are working with you.
2. How do you get paid?
There are many fee structures that advisors can use. Try to avoid conflicts of interest by working with a “fee-only” advisor. A fee-only advisor might charge a percentage of the assets they manage for you, a flat fee, or an hourly fee. Their pay is not tied to any products or proprietary strategies.
Some advisors are paid for selling certain products or work on commissions. This incentivizes “turning” or excessive trading of your accounts in order to generate more commissions. Furthermore, it focuses the relationship on trading instead of taking a comprehensive look at all the pieces of your financial puzzle.
Lastly, if you are working with someone at a company, you may want to inquire about their specific pay structure. Some advisors may be selling a “fee-only” service; however, their actual payment from the company could be a one-time upfront sale plus a small ongoing pay to serve you. If this is the case, you may receive good service in the beginning but less attention over the years as they are incentivized to bring on new clients.
3. How does your company determine your performance?
For advisors that work for a company, it is important to understand their incentives. If a company’s key performance metrics for an advisor is sales-focused, you can be sure that the advisor will focus on this. Instead, try to find an advisor whose metrics are focused on client satisfaction and retention.
4. Are you completely independent?
Advisors that work for or are affiliated with a brokerage firm are not independent. This can lead to conflicts of interest as these advisors are encouraged to promote their company’s products and services. They may be given bonuses for selling certain proprietary solutions. Their advisors may also be limited to a certain list of vendors or investment providers for their clients due to the contracts negotiated by the broker.
A completely independent Registered Investment Advisor has the least amount of
conflicts of interest. Also, they are legally required to act in your best interest.
5. What are your qualifications?
There is a cornucopia of financial designations and initials in the financial industry. The CERTIFIED FINANCIAL PLANNER™, or CFP® for short, is the standard of excellence in financial planning. CFP professionals must pass five rigorous and comprehensive graduate-level courses around: Investment Planning, Tax Planning, Retirement Planning, Estate Planning, and Insurance Planning. They must pass an independent board exam and complete 30 hours of Continuing Education (CE) every two years. They must also meet the top ethical standards in the industry. You can read more about the designation here: CFP Board
To read more about other various designation, see Professional Designations | FINRA.org.
6. What’s your investment philosophy?
If you feel strongly about a certain investment approach or belief, make sure your advisor has a similar philosophy. Otherwise, this can create a major conflict and will likely lead to problems down the road.
7. Who is your custodian?
Did someone say Bernie Madoff? You may remember the fraudster who ran the largest Ponzi scheme in American history, worth about $65 billion. Madoff had custody of his clients’ assets, created all the reports, and managed the money.
When working with an financial advisor, make sure your money is custodied at a broker that is independent from your advisor. You should be able to quickly check with your custodian on your account balances and holdings. They should also be providing your statements.
8. How many clients do you have and what will our communication be like?
Make sure your advisor has the bandwidth to give you the attention you want and need.
Ask the advisor questions such as:
• How often will we meet?
• When we do meet, will it be by phone, video conference, or in-person?
• How quickly will my calls and emails be answered?
• Can we meet outside of our scheduled meetings if needed?
• How easy is it to schedule an appointment if I need one?
If you are looking for an advisor that is working with you comprehensively, aim for an advisor with no more than 75-125 clients.
9. What tax hit will I face by working with you?
Some advisors will take an existing portfolio and sell everything to reinvest into their models. This can result in serious tax consequences.
Make sure to ask your financial adviser about the tax consequences and their strategy for handling an existing portfolio that has capital gains issues.
10. What happens if I am not happy with your service?
Does the advisor provide any promises or guarantees if you aren’t happy with their work? Will they refund your fees?
Interviewing a financial advisor or asking these questions to your current advisor can feel intimidating. If the advisor is frustrated by these questions, lacks transparency, or provides dissatisfactory answers, you know you’re in the wrong place.
If you’re asking your current advisor, it may be time to terminate the relationship and find someone who is a better fit.
Want to learn more tips to thrive in retirement and avoid major financial mistakes? Check out our free PDF guide by clicking HERE.
Meet the Contributor
Zack Swad is a fee-only financial planner located in Santa Rosa, CA serving clients locally and across the country (virtually).
He specializes in financial planning and retirement planning for people age 50+. As a fee-only, fiduciary, and independent financial advisor, Zack Swad is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice. He has been in the finance industry for over 11 years. He previously worked for a Fortune 500 Financial Services company, managing a practice of $800 million for 300 clients. Zack then went on to build his own firm, Swad Wealth Management, LLC so he could make a deeper impact in his client’s lives. In his free time, Zack enjoys spending time with his wife Elise, playing board games, piano, and singing.
Zack Swad’s Contact Information:
Email – firstname.lastname@example.org
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