After being do-it-yourself investors for over 40 years, my recently-retired parents have decided they’re ready to seek professional help. Their conservative investing style has served them well (especially over the last few years), but they don’t like the idea of having to settle for pitifully low rates of return. They want to keep their money as safe as possible, but they’re coming around to the idea that they’ll have to branch out beyond certificates of deposit to generate enough additional income to maintain the lifestyle they want.
When they asked me how to find an excellent wealth management company, I recommended that they get referrals from friends or to contact reputable companies. I also told them to schedule a meeting with each prospective advisor and to ask him or her at least the following 8 questions:
Question #1 How long have you been in business?
Never assume that an advisor’s age or fancy office equates to having experience in the industry. Find out when the financial firm got started, how many people are on staff, and exactly how long they’ve been working with clients.
Question #2: What services do you provide?
Don’t assume that you know exactly what services an advisor or their company provides. Ask about specific services that you need, such as investment management, retirement planning, college planning, estate planning, or insurance analysis. It’s important that the advisor or firm’s expertise is a perfect match for you to get the best results.
Question #3: What licenses do you hold?
Find out whether the advisor is a Registered Investment Advisor (RIA), a stockbroker, or an insurance agent. Knowing an advisor’s designation tells you how he or she earns a living and what kind of products they’re likely to recommend.
Question #4: Who do you typically work with?
Before you give a potential advisor any information about yourself, ask them to describe their typical client in terms of age and portfolio value. It’s best to work with someone who has expertise working with people just like you.
Question #5: How often do you provide account updates?
Find out how often you’d receive updates, phone calls, and statements from a financial advisor. If having up-to-the-minute information is important to you, ask if you would be able to check the status of your accounts online.
Question #6: How are you compensated?
It’s important to understand how an advisor charges clients. Would you have to pay commissions on product sales, flat fees, a percentage of your overall portfolio, or all of them? Advisors can hold multiple financial licenses and therefore they can earn income in multiple ways, including perks from third parties and prizes for sales contests. It’s also important to note that many financial advisors don’t have a fiduciary duty to their clients and may recommend products which earn them the highest commissions.
Question #7: What additional costs would I have?
Find out if you’d have to come out-of-pocket to pay for expenses like account set-up fees, transfer fees, or maintenance fees. Get any additional charges disclosed to you in writing before you agree to use the advisor’s services. Also find out if you’d be required to sign a contract to retain the advisor’s services.
Question #8: What is your investment philosophy?
Advisors should have a fundamental investing philosophy or approach that they’ve developed. Find out what it is, why they use it, how long they’ve used it, and if they can provide it in writing. Ask if all the advisors in the firm manage investments the same way or if they handle clients differently. It’s best to work with a company that has a unified methodology with a high degree of collaboration among advisors, so your financial security doesn’t rest on the shoulders of just one person.
Do You Need a Financial Advisor?
Interviewing a financial planner and getting answers to the right questions will help you understand what an advisor can do for you and what they can’t. He or she should also ask you lots of questions and offer specific information about the services and typical results they provide for average clients.
It’s wise to interview at least two or three people so you have some means of comparison. You never know, they might even teach you something you didn’t know about what you should be looking for in a good advisor. If you don’t like a prospective advisor or their firm, simply thank them for their time and move on to the next candidate.
In your experience, what other questions do you think are important to ask a prospective financial planner or investment advisor?