Top Questions to Ask a Financial Advisor was written by Max Marvelous and originally appeared on Wealth Tender. As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help relieve money's stress. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches. It has been republished with permission. Please note that contributing opinions are that of the author. They are not always in strict alignment with our own opinions.
If you’re unsure what to do with your own investment portfolio, hiring a financial advisor may help you sleep easier at night.
To find the right financial advisor for you, it’s important to interview multiple financial advisors and ask the right questions, especially if it’s your first meeting. Here are the top 7 questions you should be asking before picking a financial advisor.
Will You Put My Interests First?
If a financial advisor is a fiduciary, then they adhere to standards to work in your best interest. For example, financial advisors who have earned the Certified Financial Planner (CFP) designation agree to always act in their client’s best interests.
The term fiduciary is often used on websites, but what does it mean, and how can you be sure that the advisor is adhering to the standards of a fiduciary? The fiduciary standard expressly states that advisors who uphold it are required by law to put the needs of their clients first.
Ryan Firth, the founder of Mercer Street Financial, says you should ask direct questions about the priorities of an advisor, such as:
Will you and your firm always act in my best interest? If so, how?
Give me an example or two of how you put your client’s interests ahead of your own?
In plain English, how do you mitigate potential conflicts of interest between what’s best for your clients and what’s best for you or your firm?
Another role of a fiduciary is to limit or be transparent about any conflicts of interest that may arise. A fiduciary is essential because conflicts of interest may affect the quality of work the advisor can provide and create unnecessary stress.
So how do you make sure you choose a fiduciary who will put your needs first and uphold the standards required of them? You can use the Broker Check feature on the FINRA site to check the advisor’s background you are considering or choose an advisor who has earned their CFP designation.
How Do You Get Paid?
Advisor fees and compensation can be a frustrating grey area if you are not careful. A lot of financial advisors do not disclose their fees on their websites. There are many ways that financial advisors are paid, and they should be honest about those fees and what you will need to pay.
Here are a few different ways a financial advisor can be compensated.
A fixed (or flat) fee is a previously specified price for a particular service. For example, a financial advisor might charge $3,000 for the one-time creation of a financial plan.
An hourly rate is a straightforward fee that outlines the hourly pay for the financial advisor.
Assets Under Management
Advisors who charge this annual fee will take a percentage of your investments. An AUM fee is charged as advisors are compensated for managing their clients’ investments.
Financial advisors may receive commissions for products they recommend to you, such as mutual funds and annuities. Make sure your advisor is transparent with you about which of the products they are advertising are commission-based.
Advisors may also use a different fee structure depending on what services are provided.
What Services Do You Provide?
Before you decide to hire, it’s essential to understand what specific services you need to be performed.
You don’t want to waste your time with someone who is not an expert in the service you are looking for.
Stephanie McCullough, Founder & CEO of Sofia Financial, encourages people to ask an advisor about their expertise. “The most crucial question to ask an advisor is whether they offer the service you need,” McCullough said. “If you need investment management, cash flow strategies, or retirement savings planning, be sure you’re talking to advisors who specialize in those services.”
Financial advisors usually offer a wide variety of services. These services often include:
- Education savings
- Tax mitigation opportunities
- Cash flow strategies
- Charitable giving
- Retirement planning
- Business succession options
- Trust and state consideration
- Insurance protection
- Comprehensive wealth management services
- Portfolio management
Choose someone who will be able to meet your current and future needs, as your finances will likely evolve throughout your life.
What Is Your Investment Philosophy?
A good financial advisor will dig deep into your investment needs (and ask you questions) before recommending any products or services to you.
You want an advisor who makes an effort to understand the full scope of your needs and who will align themselves with your goals. Their investment advice should mirror this philosophy as well.
Ask your advisor if they prefer one specific investment style or one type of investment. The ideal advisor should not take a one size fits all approach, as some investment styles may work well for some individuals but not so well for others.
What Experience Do You Have?
There are pros and cons to working with financial advisors who are new in the field. They are likely to be more excited about their work and more dedicated. They may also have the resources of a well-established firm to back them, which could work well for you.
However, they have not been tested yet, and if they don’t have prior advising experience, it may be better to seek out someone more seasoned in the field.
Always look at an advisor’s career history to see if they have other finance-related experience or professional certifications that will benefit you.
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