Hiring a financial advisor can feel overwhelming, and that’s mostly because so much is at stake. After all, the strategy you use to invest and grow wealth can have a profound impact on your life now and later on.
Not only is it crucial to hire someone with your best interests in mind, but you should make sure whoever you work with is properly credentialed and willing to be transparent about his or her fees and planning process.
Before you hire a financial advisor, you need to look below the surface to find out more about them and how they work. Take the time to ask the crucial questions outlined below, and you’ll find out quickly if an advisor is a good fit for your needs and goals.
How do you get paid?
Some financial advisors earn commissions on the financial products they recommend, whether that includes ETFs, mutual funds, or an annuity they suggest. It’s easy to see why this could be a huge conflict of interest; after all, an advisor who is paid this way has an incentive to suggest financial products with the highest commissions and fees.
This is why I recommend working with a fee-only firm who is only paid for their advice and never earns commissions on products they suggest for your portfolio. When you work with a fee-only financial advisor, you’re more likely to receive honest advice tailored to your needs without having to worry about divided loyalties or biased advice.
Are you a fiduciary?
Here’s another important query to make: Is your financial advisor a fiduciary who is legally obligated to act in your best interests? If you ask your advisor this question and they don’t provide a clear and concise answer, it’s safe to say they are not required to act as a fiduciary 100 percent of the time.
At the end of the day, you should never hire a financial advisor who is not a fiduciary. Without fiduciary status, financial advisors face too many conflicts of interests that ultimately guide their decisions.
Do you rely on any third party help?
Will you always speak directly with your financial advisor when you check in on your financial plan? Or, does your advisor work with a team of other advisors and professionals who might be tasked to handle your question on any particular day?
While you may not mind working with others in your advisor’s office and under his or her charge, this is still a good question to ask.
Meanwhile, you should find out if your financial advisor ever calls in third party professionals like accountants or tax advisors. Generally speaking, bringing in third party assistance is a good sign since it shows your advisor is willing to rely on experts to get the best results.
What are your qualifications?
According to the Financial Industry Regulatory Authority (FINRA), more than 200 different professional designations may fall under the title of financial advisor. And, in reality, professionals don’t have to meet any specific criteria to call themselves a financial advisor to begin with.
Before you hire a financial advisor, you should find out their qualifications, including whether they have earned a CFP designation or they are a Registered Investment Advisor, CFA, a ChFC, or even a CPA. If your financial advisor doesn’t have any designations and works for a large insurance company, you should run and never look back.
What is your investing philosophy?
The best financial advisors figure out what you need and tailor their approach to help you reach your goals. With that in mind, you should find out whether any advisor you’re considering is “old school” with a very specific way of doing things, or whether they’re someone who is always trying to learn, grow, and find new ways to do everything better.
Ideally, you’ll find a financial advisor who uses the best platforms and tools to help you grow your wealth but is also willing to change things up as the years tick by. Remember, you should strive to find a financial advisor who manages and oversees your wealth like it’s the most important job they have…because it is.
How will we communicate?
Does your financial advisor insist on in-office meetings? Or, are they more than happy to hop on the phone or have a meeting using Google Hangouts or Skype?
Any of these communication methods can work just fine, but you should find out how a financial advisor prefers to communicate before you commit.
How often will you revisit my plan?
We’ve all heard stories of financial advisors who happily collect account management fees but never really check in, but that is not what you should be looking for. No matter what, the best financial advisors will repeatedly go over your financial plan to look for ways to adjust and improve over time.
Tax laws can also make a big difference in long-term financial plans, and that’s especially true as you get closer to retirement age. By and large, you’ll want to hire a financial advisor who will look over your financial plan a few times per year at minimum and hopefully once per quarter.
Who are your typical clients?
Also keep in mind that some financial advisors focus on specific types of clients, whether that means individuals in a certain age group or clients with a certain level of wealth. If you’re in your late 30’s and you have another 20 working years ahead of you, you wouldn’t want to work with a financial advisor who focuses on post-retirement planning, would you?
Before you hire a financial advisor, you should ask them if they have experience working with clients who are on a similar path toward retirement as you are. Ideally, you’ll find an advisor who knows where you’re at and the common issues facing someone in your income range and career field.
Why should I choose you?
Always ask a financial advisor why you should hire them, and listen carefully to what they have to say. If you’re considering a financial advisor simply because they work with someone you know, you should make sure there are other compelling reasons to hire them, including their fee-only or fiduciary status at the very least.
There’s no “right” or “wrong” answer to this question, but any financial advisor you’re considering should have some explanation of why their services are worth it. If they believe you should hire them because they know your Uncle Kenny or they attended your alma mater, then you should probably keep looking and find someone else.
The Bottom Line
Don’t be afraid to ask questions, and don’t hire a financial advisor until you understand how they operate and what they care most about. The reality is, practically anyone can call themselves a financial advisor, and there are a lot of insurance salespeople masquerading as financial planners out there.
To sort the good from the bad, you have to conduct due diligence to find out about your advisor’s credentials and history, as well as how they get paid. The questions above can help you find the best financial advisor for your needs, but only if you ask them.