In these days of increasing financial complexity, changing tax laws, increased market volatility, increasing interest rates and concerns about high stock prices, getting professional financial advice can be a great decision.
The problem is that people seldom interview a financial advisor, so they have little experience in doing so and therefore can make costly mistakes. There is a three-step process in selecting a great advisor for you.
In a prior article, we covered the first step, which is a review of information that you should know before you start to look for a financial advisor.
As the second step, in another article, was a checklist to gain clarity on: the services that you want provided, the qualifications that you desire in an advisor as well and the compensation method that you want to utilize and the legal protections you prefer. The suggestion of asking for the advisor’s form ADV was also made, so that you can gain an understanding of the business model, fees, etc. prior to meeting the advisor.
After completing step one and two, you are now ready to make an appointment with two or three advisors and ask the important questions, which could include:
- What is your training and certifications? (CFP®, CFA® AIF® are some of the best.)
- How long have you been working as a financial advisor/planner? (The longer the better.)
- Ask the advisor to review the services that are offered to be sure that you can obtain what you are looking for from that firm.
- The field of financial planning is broad. What are your strong points and what are the weak points or least favorite?
- Explain your typical client and the range of clients as to income, assets, age, occupations, etc. (Are you like the advisor’s other clients?)
- Are you a Fiduciary 100% of the time, and do you accept fiduciary responsibility in writing? (This is what you want.)
- Are you or your firm affiliated with a broker/dealer? (It is best if they are not, so they are not tempted to try and sell you a product.)
- Are you or your firm licensed to sell insurance products, and do you sell insurance. (It is best if they are not, so they are not tempted to try and sell you a product.)
- Does the firm or you have any securities law violations? (No is better than a yes.)
- Does your client agreement require binding arbitration if I feel an error has been made? (Better to not have binding arbitration.)
- Is all work, planning or investment management done in house or referred out of the office?
- What happens to us, our plan, our accounts if you, the advisor, die, are disabled or retire?
- How many clients can you work with and maintain quality with the current situation?
- How many clients do you have now?
- What happens when you max out on the number of clients? (They could add more staff, move to larger offices, fire the smaller clients or sell the smaller clients to another advisor.)
- Do you or your firm have any securities ethics violations?
- Do you provide a written fee estimate for the services requested?
- What is your investment philosophy for equities/stock, active or passive? (It is well demonstrated that passive beats active management over time.)
- If we hired you to provide investment advice, would you invest in individual stocks or ETFs or mutual funds?
- What are the expected expense ratio of the ETF’s or mutual funds that would be used in the portfolio? (The lower the better, 0.1% to 0.5% is good, 1% is above where it should be.)
- Would you manage our investments? If yes, then the following:
- Who makes the investment decision, in house or out?
- Explain how you determine what investments to use and when they should be changed.
- What are the costs and fee structure for investment management?
- What is included in that management fee, investment management only or something else such as coordination with other advisors, updating financial or advanced planning topics.
- How often would we meet and what are the means of communication?
Now that you know what to be looking for in an advisor, are clear as to what you want in services and have input from several potential advisors, you are in a good place to make a good decision as to which advisor is best for you.
Good luck on your quest for the best advisor for you!