Questions to Ask when Searching for a Financial Advisor

Questions to Ask When Searching for a Financial AdvisorThere are a lot of “financial advisors” out there, and not all advisors are created equally.  I recently spoke with a prospective client who asked some great questions.  Unfortunately, she learned to ask these questions through a prior bad experience, so I wanted to share her questions to help others avoid their own bad experiences.

  1. Are you a fiduciary?

    “Fiduciary” has become a popular word in financial news lately due to the recent Department of Labor Fiduciary Rule that went into effect June 9, 2017.  It means that the investment professional acts in the best interest of the client in all circumstances, as it would seem any advisor should.  Unfortunately many do not which is why legislation was put into place.  Fortunately, at Financial Symmetry we have always been fiduciaries, so this is nothing new to us.

  2. Is your firm fee-only?

    The term fee-only is one that not many people are familiar with.  It means that the firm is compensated only directly by clients and receives no commissions for pushing or selling any financial products like insurance, annuities or investment products.  Be careful not to confuse fee-only advisor with fee-based  Fee-based means the financial advisor is compensated by clients and commissions.  A better way to describe fee-based would be fee-and-commission based.  Financial Symmetry is a fee-only firm, as we believe that is the best way for us to give clients recommendations that are in their best interest, reducing any conflicts of interest.

  3. What are your fees?

    Most people ask about fees, but many don’t pay enough attention to the answer or don’t know how the fees compare to other firms.  When asking about fees, make sure you know what you’re getting for the fee.  Is the fee strictly for an advisor to oversee your funds without having structured, periodic reviews of your portfolio?  Is the fee for an advisor to review your portfolio on a regular basis?  Are you getting financial advice for all aspects of your financial life for your fee?  Does your fee include ongoing attention to your cash flow or tax situation?  Does it include comprehensive financial planning?

  4. Do you offer _________?

    You could fill this question with any type of service you need. Perhaps you are looking for comprehensive financial planning, tax planning, estate planning, education planning, Social Security planning, or insurance planning.  Make sure you understand what services you can expect for the fee(s) you will be paying.

  5. What’s your background as an Advisor?

    Does the Advisor have relevant credentials?  As with many other industries, you should search for a professional who has the credentials that will show they are educated and have the necessary experience to fulfill their duty.  In financial planning, the CFP® designation does just that.

  6. What kind of investment return can I expect as your client?

    This is a question that you do not want an advisor to give a direct answer to.  Investment returns rely heavily on the market as well as your investment mix, so anyone promising to give 10% (or name your number) returns each year should be viewed with high skepticism.  There is no way to guarantee returns.  Some better questions would be, “How do you determine how clients’ portfolios should be allocated?”, “Do you have a disciplined investment strategy?”, “How have your clients’ portfolios performed relative to the average investor over full market cycles?”, or “Do you stick with your investment strategy even when it seems to be out of favor?”  Look for advisors who have a disciplined investment strategy and stick to their guns, even when things might not look great for a period of time.  Research has shown that sticking with a strategy even during periods of underperformance leads to better long-term returns.

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