Introduction: Questions to Ask When Choosing a Financial Advisor
Savers, investors and retirees should exercise the same amount of diligence in choosing a financial advisor that they use when choosing a health care professional.
Why?
Because choosing a financial advisor that’s right for you will determine the future state of your financial health, and making the right decision is key to getting and staying financially healthy.
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Sadly, there is not enough literature on the subject, and so, many investors often go with the first advisor that someone recommends to them.
Others end up using (by default) the financial advisory service of their financial institution.
Being proactive in choosing a financial advisor can deliver long-term benefits.
Here are 10 questions that you should ask before deciding whether the financial advisor is right for you:
1. Credentials and qualifications: Ask what qualifies him/her to deliver financial advice to clients. While some individuals may loosely use the term “advisor”, others have gone through rigorous periods of studies and qualifying examinations to use that title.
2. Alignment of interests: Ask if they have “fiduciary duty” towards you (as their client). Ideally, choosing a financial advisor that responds “YES” to this question means they will always give you advice that’s in YOUR interest – even if that advice may sometimes not benefit their employer (Banks, Mutual Fund companies etc.).
3. Tools and Teams: There’s nothing wrong with working with individual/freelance financial advisors – as long as you are comfortable with what you’re getting. But ask how they deliver service – whether as individuals, or as part of a team. Inquire about what type of research they have access to, and what types of tools they use (or make available to clients).
4. Products and services: The golden rule for acquiring anything is: buy what you need, and choosing a financial advisor is no different. If all you need is someone to consult with about a specific investment, then look for an expert in that area. Some advisors are exceptional at building and managing portfolios, others do it all – Estate Planning, Investment Policies, Insurance planning, Taxation. Ask about all of the services that you feel you may be interested in, before making your decision.
5. Fees and commissions: Choosing a financial advisor without knowing what his/her services will cost is foolhardy. Not only should you ask how much you will pay, but also ask if they will receive payments from third parties (Mutual Fund companies, Insurance Brokerages etc.), for advice on products/services provided to you. Transparency up front will save many a heartache later on!
6. Approach and style: Asking how they manage their clients can often give you an insight as to whether the advisor is right for you. Is it a consultative approach? Is it an aggressive “get it done immediately” approach? There’s nothing wrong with either, as some clients prefer one or the other styles. As long as you know what you are getting before you sign on the dotted line!
7. Communication: Financial professionals are not often known for their literary style, but choosing a financial advisor without asking how he/she will communicate with you is never recommended. Ask to see samples of Financial Plans, Investment Strategies, and Monthly/Quarterly Account Statements.
8. Accountability: Every professional should be open to accountability, and financial advisors should be no exception. Before choosing a financial advisor to work for you, make sure you understand how they can be held accountable. Often, this is done through regular Portfolio/Financial Plan Reviews. Find out what they typically cover in such reviews, and what types of recourse (formal complaint, escalation, dispute resolution, reimbursement of losses, litigation) is available to you if things don’t go according to plan.
9. Client base: Ask what their “typical” clients are like. Choosing a financial advisor who serves many other clients with financial circumstances similar to yours will mean he/she has relevant experience to guide his/her personalized advice to you.
10. Laments and litigation: Find out whether the financial advisor has been involved in major litigations, or has faced professional misconduct charges against him/her. More importantly, knowing why those charges arose, and what the result of the dispute was, will give you insight into whether he/she is someone you can work with.
Peace of mind
Just as a well chosen real estate agent, surgeon or lawyer is worth their weight in gold, so too choosing a financial advisor that fits your needs can produce great benefits.
And while most of those benefits should come in the form of higher returns and lower volatility in your portfolio, you’ll also enjoy:
• professionalism
• transparency
• honesty
• friendship
Ultimately, choosing a financial advisor that’s right for you will deliver you plenty of peace of mind!
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