Choosing a financial advisor is a significant task. Ideally, this choice will lead to a long-term relationship with substantial implications for your financial future. It’s a bit like dating: you want to be sure you’ve found a good match before making a commitment. Also like dating, first meetings can tell you a lot! Here are 8 questions to ask a financial advisor to determine if they’re a good fit for you.
Are you a fiduciary?
There are an overwhelming number of titles and acronyms floating around in the world of financial services. Don’t worry about knowing or understanding them all, just ask one key question: are you a fiduciary? A fiduciary is legally bound to put their client’s best interest ahead of their own and act in good faith. Nonfiduciary advisors can recommend any products that are “suitable,” even if they’re not the most fitting or lowest-cost option available.
How do you get paid?
Advisors generally get paid by charging a percentage of assets they manage, a flat or hourly rate for services, or get commissions from products they sell. Many advisors use some combination of these. With a fee-only advisor, you can be rest assured your interests are aligned. They won’t be directly compensated by any product or service they recommend. The only way they can make more money is by increasing the value of your investments. That’s a win-win! It’s also worth asking about other fees you may encounter, such as mutual fund fees. You want an advisor with a plan to keep your money where it belongs – in your portfolio.
How will our relationship work?
Find out what the relationship will look like moving forward. How often will you meet with your advisor? Do you have access to them outside of those scheduled meetings? How can you reach them if you have questions or concerns? Can you call them directly, or will you be screened through gatekeepers first? You want an advisor who will be available to actually advise.
Who are your typical or ideal clients?
An advisor with experience is an obvious plus, but what about experience with people like you? Is your advisor practiced in handling the types of situations you’re likely to encounter? Do they know how to reach the types of goals that matter most to you? Asking an advisor to describe their ideal client can also be telling. Does their description sound like you, or is it just a lot of fancy words that mean “anyone who has money?”
What is your investment philosophy, and how do you measure its success?
Every advisor will want to help you reach your goals, that’s easy. How you get there is important, too. You’ll want an advisor with an investment philosophy you believe in. Find out how they approach asset allocation and diversification. It’s easy to stay confident when markets are booming, but volatility is an inevitable part of investing. Having confidence in the plan will provide some peace of mind during hard times, and help you avoid selling out at market bottoms. Learn how the advisor measures performance, and make sure the benchmarks they use match their strategy. A high-risk strategy measured against low-risk benchmarks won’t give you the information needed to make sound decisions.
Why should I choose you instead of a robo-investor or online service?
There is a plethora of new, online-only ways to get investment help. Many of these options come with lower overall fees than an in-person advisor. Take the time to understand the services a financial advisor offers that a robot can’t.
Can you explain _____?
No, don’t ask them to explain underscores – fill in the blank! Communication will be pivotal to the success of your relationship with a financial advisor. Pick a topic you don’t yet understand and ask them to break it down for you. Does their communication style connect with yours? Can they help you see things in a new light? Do they act as if educating you is a waste of their time? You’re going to have important questions to ask your advisor, make sure your advisor finds them important, too.
Use these questions as a starting point to find a financial advisor who can help you reach your goals, but don’t forget to look for someone who will make you feel taken care of along the way. You are more than the money in your investment account, and the right advisor will provide the wholistic services you deserve.
The information provided is for informational purposes only. It is not intended to be used, and should not be used, as the sole basis for legal and/or tax advice. Individuals should seek and rely upon the guidance and advice of their own legal and tax counsel before making any decisions regarding any planning, investment, tax concepts or strategies discussed herein. Individual circumstances may vary and results discussed are no guarantees of applicability or future performance.