When it comes to managing your finances, it is important to have a trusted financial advisor who can guide you towards your goals. This will be an important relationship, and you want to be able to trust this person and feel comfortable talking about important subjects like money and personal goals. But with so many options out there, how do you choose the right one? By asking these 8 essential questions:
- What are your qualifications and experience?
It is important to know your financial advisor’s qualifications and experience to ensure they have the necessary knowledge and expertise to guide you towards your financial goals. Ask about their education. What did they study in college? Have they obtained industry-related designations such as a CFP®? CFP®s have extensive training in areas such as retirement planning, educational funding, taxes, risk management, and are required to complete professional education every year. What financial experience does the advisor have? Working with someone who has helped hundreds (or even dozens) of clients can provide a lot of value.
- Are you a fiduciary?
Is the advisor held to a fiduciary standard, which says that advisors must act in the best interest of their clients when providing investment advice? Some advisors abide by what is called a “suitable and appropriate” standard and are not required to be fiduciaries. Others, such as CERTIFIED FINANCIAL PLANNER™ professionals are obligated to be a fiduciary.
Some advisors abide by what is called a “suitable and appropriate” standard, which means their advice needs to be reasonable. But it may not be what is best for the client. Other advisors, such as CFP®s are required to be fiduciaries, meaning that they must do what is in the best interest of their client. Therefore, they are in a position to provide objective recommendations, unbiased by how the advisor gets paid or other factors.
- How do you get paid for your services?
There is a confusing array of financial advisors and fee structures. Some are employees of large companies, some are salespeople who get paid when they sell something, and some are independent advisors who get paid on a fee basis. How does the advisor get paid? Will their compensation be affected by their investment recommendations? Do there appear to be any conflicts of interest for the advisor? What, if any, additional fees or account expenses are there? Compensation for the advisor should be transparent and straightforward.
- What services do you offer?
Before choosing an advisor, it is helpful to think about which services you need. Then, see if the advisor offers those services. Some of these services include retirement planning, investment management, estate planning, educational funding, cash flow planning, risk management, and tax planning. Not all advisors provide the same services to their clients. If you are looking for something specific, be sure to ask about it.
- What kind of clients do you specialize in serving?
Many advisors have a particular type of client with whom they work. Some focus on retirees, business owners, wealthy families, or specific occupational groups such as doctors, pilots, or university employees. Ideally you want to work with an advisor whose clients are similar to you so you can most benefit from the advisor’s experience working with people like you.
- What is your investment philosophy?
Understanding your financial advisor’s investment philosophy is crucial to ensuring that their approach aligns with your financial goals and risk tolerance. Ask about their approach to asset allocation, diversification, and risk management. How does the advisor’s firm select investments? How often does your portfolio get reviewed? How and when are changes made? No financial advisor has a crystal ball, however, they should be able to speak to market trends and set realistic expectations for the return on your accounts.
- How do you assess and manage risk?
When it comes to investing, risk is an inherent part of the process. It is important to understand how your financial advisor assesses and manages risk. Ask how they determine the appropriate level of risk for your portfolio. Inquire about their approach to diversification and how they manage risk during market downturns. A good financial advisor should have a clear strategy for risk management that aligns with your financial goals and risk tolerance.
- How will we work together?
What are the next steps for financial planning and investment management if you were to work with the advisor? How are the advisor and staff available to answer questions and assist with requests? How often will you meet? How will they communicate with you? The volatility of the market can be stressful, and not hearing from your financial advisor can make it even worse. A good financial advisor will educate you on the steps they are taking to protect you and your assets during uncertain times. Try to ensure whomever you hire is responsive, accessible, and communicates in a way that works for you.
Before hiring a financial advisor, it’s always a good idea to interview a few. When you can find a trusted partner to help you manage your investments, you get to worry less about your finances and spend more time on the things that really matter to you.
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