As you begin accumulating wealth, planning your finances, and investing, you might consider hiring a financial advisor for help. Quickly, you might feel overwhelmed, confused, or might not be interested in managing every little detail. But before hiring a financial advisor, you’ll want to ask a few important questions. And pending their answers and the information you research, you’ll be able to make an informed decision.
1. Are you a fiduciary?
You might assume that all financial advisors will have your best interests in mind. And you’d also like to assume that their recommendations and choices are based on your specific financial goals.
However, many can (and will) push products on you that are not in your best interests because they collect nice fees or kick-backs. Instead, you want a financial advisor who is a fiduciary. When this person is a fiduciary, it means they work in the best interest of their clients and make decisions based on what will create the most value as well.
2. What credentials do you have currently?
If you have ever evaluated people who work in financial services, you’ve probably seen a bunch of fancy acronyms by their names. All of those mean different things and it means the financial advisor you are evaluating is certified in something specific.
But you want to ask about their credentials and learn what qualifies them to provide advice and manage assets for you. The Financial Industry Regulatory Authority’s professional designations database has all the info you need about all the various titles, qualifications and more.
3. How are you paid for your services?
Financial advisors can charge for their services in different ways, but it’s important you ask and understand any fees involved. Your goal is to keep as much of your money as possible and not be giving up tons of money that should be going towards your investments instead. Fee structures with advisors include flat fees, hourly rates, fee-only, etc. Ultimately, you want a fee-only financial advisor, where they won’t be getting commissions based on what they sell to you to invest.
4. Do you get paid beyond your clients?
Make sure to also ask another question about how they are paid to see how they respond. You want to potentially ask if they get paid beyond their current clients. Besides getting a fee for the services they provide, they could be fee-based where they earn extra on the assets they include in your investment portfolio or for selling additional products for a commission. Asking this and understanding their response, will help you determine if they are focused on your needs first, or just an extra commission check.
5. What are all the financial services you offer?
There are various financial services that an advisor can provide or may be more specialized in currently. It’s important that you ask about all the options you have and what the advisor and their team focus in. You’ll want to know this, especially for your own financial goals and ensuring you are hiring the right person for your specific needs. Potential financial services include investment portfolio management, financial planning, tax planning, debt management, life insurance, and more.
6. What’s your investment philosophy?
You might be completely new to investing and are not sure about your own philosophy exactly. But you might have particular investing goals in mind. When you are first chatting with a financial advisor, make sure to ask them about their own investment philosophy.
Ideally, you want to hear how they view long-term investing, the kind of investments they choose for clients, and that they invest based on your personal goals. These are good indicators of what you can expect of their investing style and you want it to align with yours for there to be good synergy.
7. How often will you communicate with me?
When your money and investments are on the line, communication is extremely critical. But whether the markets are in a correction or an amazing bull market is in flight, your financial advisor should be communicating with you on a regular basis.
Ask them upfront about how often they will regularly communicate with you. Now, you don’t necessarily need to hear from them every day about your portfolio or specific financial services. But you should be aware of some consistency whether that is monthly, quarterly, or some other cadence.
8. How often will we need to meet in person?
Part of working with a financial advisor will be meeting in person to go over your finances and investments. Many will have a particular schedule in place like quarterly or semi-annually.
You’ll want to ask about how they meet and how open they are if you request additional meetings. The goal is to find a balance that works for you. You don’t need to meet too often, but you also don’t want to be left completely in the dark until the end of the year either.
9. What are the minimums of assets you require?
Depending on the financial advisor and if they work for a firm or not, they may require large minimums for you to get started with them. Ensure you ask this question fairly early, to understand what type of money you may need to start with this person.
Naturally, you’ll want to work with someone that fits your current assets you have. And unfortunately, there may be some finance advisors that meet all your criteria but a minimum entry might be a current barrier.
10. How do you measure financial performance and investments?
A great question to ask a financial advisor is how they measure your financial success — things like your goals, investment performance, client satisfaction, etc. While they should be measuring your return on investment with them, their results should be measured beyond just financial gains too. They should have multiple points of measurement that evaluate your financial health while working with them.
Listen to how they approach this and that they have a plan that shows how they are monitoring your results and overall success.
11. Why did another client hire you? Why did a client leave you?
Think of your potential financial advisor as someone you are hiring at a job. Besides understanding their background, you want to see if they will tell you about past and present experiences. Why did a recent client hire them and why might a client have left?
No one is perfect and sometimes business relationships do not work out as goals are not aligned, but you want to look for honesty and transparent stories of their current work portfolio. Look for any redflags or odd patterns to past client relationships that might be a sign in a positive or negative direction.
12. How do you approach taxes and fees with my investments?
When it comes to your money and investing, paying the minimum amount in fees and taxes is important. So a question you should ask your potential financial advisor (or current one) is how they approach taxes and fees on your investments.
Not only can and should a financial advisor be able to help you understand your taxes and fees, but take an approach that saves you money. Your potential advisor should be able to provide recommendations, have a strategy, and be upfront about your potential results after any fees or taxes.
13. Do you have a team that helps you manage my finances?
While many financial advisors will handle the majority of work and recommendations, most will also have a team to help. After all, there is a lot of information and steps to optimizing everyone’s finances!
But it’s important to ask about the team your financial advisor may be utilizing for your finances. What are some of their backgrounds, specialities, and experiences? It may seem tedious or that you are asking too many questions — but this is your money! Doing your due diligence can make all the difference in your net worth.
14. Are you specialized for certain clientele?
Most financial advisors will specialize in various areas of finances like financial planning, investing, debt management, etc. However, some take a more specialized approach or have a target demographic.
Naturally, you may know some of that information prior to meeting but it’s still important to ask. This will ensure you align yourself with the right advisor pending your financial needs. For example, do they focus on retirement age groups only? Are they more focused for business owners?