If you have arrived at the realization that you need a financial advisor, hiring the right one is a big, important decision. Maybe something has happened that is serving as a catalyst for wanting a financial advisor like getting a new job with a much higher income. Or perhaps you have just decided that it’s time to have objective oversight of your finances so that you don’t make a mistake. Regardless of what has prompted your inquiry, you will want a financial advisor who best matches your needs.
Even though there are 271,900 personal financial advisors reported in the U.S.according to the Bureau of Labor Statistics, it’s worth noting that approximately 3,000 are fee-only, fiduciary financial advisors. Why is this important? Because there are many people who call themselves a financial advisor who don’t have the education, experience, or credentials to serve a client’s best financial interest.
So, before you hire anyone to help manage your financial life, here are some tough questions you need to ask first.
Questions to Ask a Financial Advisor Before Hiring One
1. What kind of financial advisor are you?
The word you want to be on the lookout for is, “fiduciary.” There are financial advisors for every aspect of finance from taxes, financial planning, investment management, insurance, and anything you can think of in between. If you are looking for someone to help manage your overall finances, having a professional who is legally bound to the fiduciary oath communicates the highest standards when it comes to protecting your best interests. It means a financial advisor must put your financial interests above their own.
2. What is your level of education and background?
I think it goes without saying that you want someone who has a formal education, preferably in finance. Surprisingly, the title “financial advisor” doesn’t require any level of expertise involved. It is an unregulated job title. So, please be sure to ask a potential advisor what level of education they possess and what their degree is in.
I humbly suggest you look for someone with technical financial education. That can come in the form of a bachelor’s or master’s in finance, economics, or mathematics or something of the like. You might also find that if someone has twenty years of experience and demonstrates technical competence, it satisfies your need. The point is, know what is an acceptable level of education and experience to you.
3. How long have you been in practice?
Everyone has to start somewhere, but if you have $1 million dollars or more in investable assets, I’m pretty certain you don’t want a newbie. Even professionals in their forties or fifties could be new to the industry, so don’t go based on the outward appearance alone. Find out how long a potential financial advisor has been practicing finance, with whom, and where. All these details matter. I can tell you that I didn’t feel competent as an advisor on my own until I had been through several market cycles and even a few very dramatic market events. You want someone who has earned their stripes.
4. What are your fees and how are you compensated?
When it comes to a financial advisor, it is not rude to ask them how they are paid. In fact, it’s one of the questions you have to make sure you ask no matter what. Why? Because how an advisor is compensated will immediately alert you to any conflicts of interest to your own.
Many financial advisors are financial product salespeople, meaning they are paid by selling you a financial product like a specific fund, insurance, or annuities. If you hear, “fee-only” that is a good sign. It means a financial advisor is paid by the fees they charge, not from commissions. Note that “fee-based” is a deceptive term that means they not only charge a fee, they also charge you commissions. “Fee-only” is what you’re looking for.
5. What conflicts of interest exist between you and your clients?
Of course you want to be aware of any conflicts of interest BEFORE you hire a financial advisor! Compensation is the biggie, but there are other conflicts that may exist. Ask. If you get a fluffy, indirect answer to this question, don’t ignore your spidey senses. If something feels off, something probably IS off.
All potential conflicts of interest will be disclosed in the advisor’s form ADV (a compliance document that advisors file with their regulatory agencies, these are all available at your request and also online) or the financial advisory contract that you need to sign to become a client. So, be sure to check those out as well.
6. What designations do you hold and why?
You may have noticed that many financial professionals have letters that follow their names. A tax professional usually has CPA as an example. There are thousands of designations but not all of them denote the same qualifications. Therefore, ask which ones your potential financial advisor holds and then visit the FINRA website to see what they mean.
Some designations require a ton of education, testing, and continued education while others do not. The CFP® designation (CERTIFIED FINANCIAL PLANNER™) is quickly becoming the gold standard for comprehensive financial advisors. It requires masters level education in estate planning, income tax, risk mitigation, retirement income planning, investments, and cash flow planning.
7. Have you ever been cited by a regulatory agency for disciplinary reasons?
Would you want to work with someone who has been disciplined for unfavorable business practices? The answer is likely no. It sets off alarm bells because it suggests a flawed character or loose morals – neither of which is appropriate for someone who is managing your life’s nest egg.
8. Have you ever been charged with a crime or convicted of a crime?
Similarly, you definitely don’t want someone whose behavior necessitated a warrant for their arrest! Unfortunately, financial criminals are out there. There are individuals who lack integrity and use charisma and false promises to earn your trust and access to your finances. Even certain petty crimes should signal red flags. Be judicious.
9. Do you work with other clients with similar financial priorities/issues as me? If so, can you speak to how you’ve helped them?
This is a great question to ask because it will help paint a picture for you. Find out how a financial advisor has helped other clients like you. Hear how they talk through their solutions for these clients. A financial advisor can’t promise performance, but they can talk about win stories.
10. How often do you communicate with clients after the initial engagement? Tell me about your customer service model.
How you are served after the initial transaction is just as important as how you are on-boarded as a client. Make sure you will get a level of support and access to your financial advisor throughout your engagement. How often do they schedule meetings, how available are they to you? Having a financial advisor who can answer your questions, calm your fears, reassure you, and help you make smart financial decisions are all things you deserve when you hire a financial advisor.
11. What value do you offer that is different than another financial advisor?
Understanding the value a financial advisor can offer may be one of the most overlooked questions. After all, professionals may spend a lot of time talking about the services they offer but fail to communicate the value that brings to your life.
My clients don’t come to me because they are looking for “comprehensive financial management.” My clients come to me because they want to reach their full financial potential and want someone who is going to get them to the next level in their financial journey. They come to me because they don’t want to make a financial misstep and need someone who is going to help them grow their wealth, maximize their income, and reach financial independence.
I’m not a magician but I have done many great things for my clients. That’s the value I think anyone who is looking for professional financial guidance should have also.
Hiring a financial advisor is a decision you can’t take likely. There is nothing more personal than your personal finances and your overall financial well-being. Therefore, entrust your money and your future with a financial advisor who is able to demonstrate a high degree of competence, strong morals and ethics, and who you feel comfortable with on a personal level.
I am a fiduciary financial advisor who adheres to the highest standards of financial management. If you are ready to hire a qualified fiduciary financial advisor, you don’t have to look much further than right here. I’d love to hear from you and explore if we are the right fit for each other. You can contact me here to start a one-on-one conversation.