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commonmistakes

Lukas Gemeinhardt

CEO of Onesta

Whether you scheduled your first free consultation or are planning on scheduling, here is a list of important questions that you should come prepared with to get the most value out of the meeting. While many questions are based on an individual's unique situation or needs, this standard set of questions can help get the conversation started.

Below we've compiled a list of the top 13 questions that should be asked during your initial consultation with an advisor.

## What is your investment philosophy? 
One of the most important things to know about a financial advisor is their approach towards investment decisions. Making sure you understand and align with their philosophy is crucial to building trust and sticking with your advisor even when the market is down.

You’ll want to know how they choose specific investments for your account. What is their process for researching, identifying and selecting new stocks to purchase? How do they allocate assets? Creating a properly diversified portfolio is essential to getting better returns. How long will they stick with an investment before selling, whether that be for positive or negative reasons?

If socially or ethically responsible investing is important to you, make sure the advisor you’re speaking to is capable of creating you a portfolio that caters to that. This could take the form of  investing larger amounts of your money into environmentally focused companies, B Corporations, or whatever causes you’d like to put your money behind.

## Are you a fiduciary? 
A fiduciary is simply an advisor that acts on your behalf, always putting your best interests before their own. Not all advisors are fiduciaries if you can believe it.... You’re looking for a quick and confident “yes” to this question. No-brainer.

## What credentials do you have? 
There’s a number of credentials that a financial advisor should have depending on the services they provide. All those acronyms behind their names can be confusing but any advisor should be more than happy to provide you with their specific qualifications and explain to you what institution provided the education, experience and accreditation. Take the time to double check any advisor’s professional status.

## What services do you provide? 
If you’re speaking to someone who considers themselves strictly an “investment advisor,” this will be a short conversation. They’ll only advise you on your investment portfolio and manage your money.

It’s much more likely that you’ll be speaking with a firm, or an individual who considers themselves a “financial advisor.” These people could offer an extensive array of services including investment advice and portfolio management. Other services commonly offered include: retirement planning, estate planning, college planning, tax planning, debt management, life insurance, financial education and more.

Consider what type of help you’re looking to get from an advisor now, and in the future.

## What type of fees do you charge? 
Advisors get paid a few different ways. Most commonly you’ll come across “fee-only” advisors, meaning they don’t get commissions for selling certain products or services to you. If they do get paid by someone other than you, it could cause a conflict of interest.

The fees most advisors charge you could come in the form of a flat-fee, an hourly rate, or a profit-based fee. Each form has different advantages and disadvantages, just make sure everything fits within your budget and you know what you’re getting into.

Also check with the advisor to see if there will be any other costs associated with getting started outside of their fees. There could be charges associated with certain types of investments.

## Do you require a minimum investment or fee to get started?
It’s somewhat common for a firm or individual to have a required minimum investment amount to become a client, but this number is often lower than you might expect. In addition, many advisors are flexible. Depending on your specific circumstances, they might accept you even if you don’t meet the minimum.

That being said, the minimum is a good way to gauge whether the advisor is the right one for you. Working with a firm or individual that caters to your investment range can lead to better returns.

## How do you measure success? 
For the most part the answer to this question is obvious. Both you and your potential advisor want to see the highest return on investment possible for you and all their clients. But monetary gains aren’t the only way to measure success in such a partnership.

Advisors should also be able to tell you how often their clients are able to meet their personal financial goals, how happy they are with the service provided, and what their client retention rate is like.

## Have you ever received disciplinary action?
Hopefully the answer to this question is a quick and confident “no.” Firms are required to disclose whether the firm or any of its persons have ever violated any regulations or been charged with a crime.

There are of course a variety of violations that can occur and some are more severe than others. If the answer to the question is “yes,” the advisor should be prepared to explain exactly what happened, who initiated the incident, if it’s been resolved, and how it was resolved.

You should at that point carry out your own research on the issue or reach out to us at Onesta to determine if it’s something that will ultimately deter you from working with the advisor.

## Any other conflicts of interest I should know about?
If the advisor is indeed a fiduciary, there probably won’t be much to worry about. If they are not a fiduciary or work under some type of commission, they aren’t legally obligated to put your needs first. Honestly, we recommend that you steer clear of these options. But if you are still interested for some reason, make sure to get a full report on the other parties involved and how they impact the advisor’s decisions.

## What will our relationship be like?
Most advisors have general guidelines about how often you will meet with them, and how often they will contact you. Almost any advisor will agree to supplemental communication but it’s important to be on the same page, upfront. Depending on your needs, you may want a more hands-on approach with constant education, or you may want an advisor who handles things on their own without bothering you too much.

## Who is your custodian? 
A custodian is generally a third party bank, brokerage or specialized financial institution that actually holds your money as a safeguard against fraud. Your advisor will be the one making decisions about how the money is used, but ideally, the money isn’t literally in their hands.

## Why did your last client leave you? 
There’s a number of reasons why a client would leave an advisor, and many of them are no fault of the advisor. But this is an interesting question to ask. It’s sort of like the classic “What’s your greatest weakness?” interview question. Hopefully the answer is simple and non related to the advisor’s performance, but if it’s not, you might find some red flags and save yourself some trouble.

## What do your clients say they like most about working with you?
Let’s end on a good note. This question should be a fun one to ask. It’s the perfect opportunity for an advisor to explain what they do best and why their clients are so happy. While the biggest goal with the relationship is of course to increase your wealth, there’s a lot more to think about than money. This could be a lifelong partnership and it’s helpful to know how the partnership has been working out for others before signing on.

## What’s next?
If you’re nervous about doing consultations, just remember that you are in the driver’s seat. The decision to work with an advisor is ultimately up to you and you are not required to do anything they say. In fact, any potential advisor that makes you feel intimidated or uncomfortable should be thrown out the window, so to speak.

Once you’ve had this first meeting with a potential advisor, you should have a good feel on whether you like the person and feel comfortable talking with them. Trust is naturally something built over time, but eliminating any red flags and getting a good first impression is a key foundation. Hopefully they listened to you and were able to show you how a long-term partnership with them would flourish.

Hopefully you found this guide helpful. Feel free to reach out with any further questions or concerns, we’re here to help! 


We've compiled a list of the top 13 questions that should be asked during your initial consultation with an advisor.

13 Crucial Questions to Ask a Financial Advisor in Your First Meeting

## About Windfalls

When you receive a sudden windfall of money, the most important thing is to stay calm and not make any hasty decisions. You should set aside one year's living expenses and place the rest of the money into low-risk investments for one year. This will give you time to cool down and make rational decisions about how to use the money. After that, you should create a detailed plan to meet your financial goals and track your progress over time.

Windfalls can come in many different forms, such as through legal settlements, inheritances, gifts, lottery winnings, insurance settlements, or retirement lump sums. While not being external sources of new wealth, other common sources of receiving large lump sums include the following: a real estate sale, the sale of a business, widowhood and divorce. These events often result in individuals suddenly having to manage large sums of money.

If you receive a windfall that is large compared to your income and assets, you will need to plan for significant lifestyle changes. The guidance in this page can help you do that.

If you have any questions about this or would like to chat with an Onesta representative for further assistance, fee free to [reach out to us](mailto:support@onestafinance.com) at anytime in your journey. We are here to help.

## Common Mistakes

### Among windfall recipients, the most common mistakes include:
- Quitting one's job.
- Buying expensive priced cars or houses (or other luxury items).
- Feeling overconfident about one's investing skills, resulting in new high risk investments such has hedge funds, startups, or options trading.
- Falling suspect to complex estate and investment schemes. Be on the lookout for people trying to exploit you or take advantage of your new wealth. You are now a target for all kinds of financial schemes.
- Being overly generous with family, friends, and charities.
### Things commonly forgotten about:
- Paying the legally required taxes.
- Choosing risk-appropriate investments.
- Utilizing the best-fitted accounts such as retirement plans and trusts.
- Finding the right financial advisor to help you plan effectivlely. 
- Setting up the appropriate plans, including estate plans.

### Pro tip: 

If you are worried about telling your family and friends about a windfall of money, here is some adivce I’ve heard for how to deal with the potential burden of gifting money or responding to requests for help. 

Message your friends and family to ask to borrow a small sum of money (less than 5k). Explain to them that you’ve come onto hard times and need a bit of help to get throught it. Their responses should indicate to you if they are willing to help or not (regardless of if they can actually loan you the money). The real purpose of this tactic is to identify those who are unwilling to help you. Now that they have refused to help you, they will most likely not ask for money because it would be shameful to deny help and then ask for a handout.

Windfalls of money can create stress for you and your family even if they were willing to help you. More on this later. 

## Managing windfalls
### Get prepared
Take these steps to put yourself in a good position to manage this life-chanigng event.

Do not rush into anything, keep your cool. Professionals in this space are in agreement that impulse decisions after a windfall are usually regretted years down the road. 

- Try not to tell anyone. People change when they find out you have money. Develop a plan that takes into consideration the important people in your life before telling anyone. 
- Create an emergency fund if you do not already have one. This should cover 6-12 months expenses in a checking account. Put the rest of the money into low-risk savings vehicles (money market funds, CDs, t-bills, etc). 
- Pay off any current debts and avoid taking on new debt. 
- Consult a [qualified tax professional](https://www.onestafinance.com/search?q=&filters=eyJzcGVjaWFsdGllcyI6WyJUYXgiXSwiaXNfaW5kaXZpZHVhbCI6WyJ0cnVlIl19) in order to understand any potential tax consequences. This is especially true for complex situations such as retirement plan distributions, inheritances, and stock option exercises. By consulting a professional, you can be sure that you are taking all necessary steps to minimize your tax liability.
- If you have pressing financial issues that cannot wait 6-12 months, consider finding a fair [hourly rate for consultation from a fiduciary financial advisor](https://www.onestafinance.com/search?q=&filters=eyJpc19pbmRpdmlkdWFsIjpbInRydWUiXSwiZmVlcyI6WyJob3VybHkiXX0=). The focus of the meeting should just be to resolve the pressing issues, not to develop a comprehensive plan. 

### Lump sum or periodic payments (annunity)

This can be a difficult choice depending on your specific situation and so it might be worthwhile to find a certified financial professional to help make the decision. In most cases, people choose annuity payments because:
- It protects you from blowing all the money quickly. 
- If invested properly, you will get more money in the long run. 
- Even without investing, the annuity is usually enough to support a comfortable lifestyle. 

### Build a long-term plan

You now have the freedom to live a life that was not previously possible. Take a significant amount of time to ponder how you would like to live the rest of your life. Consider the following:
- Paying off debts.
- Retiring or cutting back hours.
- Starting a business.
- Investing in things that are important to you.
- Going back to school.
- Buying the house you live in.
- Traveling.
- Taking on new hobbies.
- Donating to charities. 

It is important to note that you will most likely not be able to do all of these things. A $1M windfall will typically only generate $40,000 per year over the long run. Initial spending should be limited so that this windfall can provide long lasting improvements. 

### A note on giving to friends or family

Rather than viewing money as something to be hoarded or spent on fleeting pleasures, you can grow to view it as a powerful force that can be applied to create good in your and your family's life, and in your community. Adopting a stewardship perspective on your windfall will create a positive experience when you give to promote your values, and will also encourage you to preserve and manage your windfall wisely for the long term.

Charitable gifts are a great way to reduce your tax burden and help those in need. However, be sure to take care of yourself first. Make sure you have enough money set aside to cover your living expenses, especially if you live in a high-tax state. When thinking about estate planning, you may want to consider giving money to your family or friends during your lifetime instead of waiting until after you die. This has a lot of benefits- your children can use the money when they need it most, and you get to see the positive effects of your gift. 

Finally, take care when giving or lending money to those in financial trouble, especially close family and friends. Most likely, their financial problems are behavioral finance problems that will not go away without help. Unless and until those problems are fixed, they will quickly be back in similar trouble, and any money you gave would likely be wasted on high-interest debts and unnecessary spending. Look for other ways to help them out, such as [hiring them a good fee-only financial planner](https://www.onestafinance.com/search?q=&filters=eyJmZWVzIjpbIm90aGVyIiwicGVyY2VudCIsImZpeGVkIiwiaG91cmx5Il19) or even providing some financial advice yourself using your newly acquired knowledge. Not everyone would be receptive to this type of help, so be prepared to disengage with them on financial topics if necessary.

### Get educated or get help

Unless financial planning or investment management is your current job, you will need to either get educated or get help. Improper management could actually put you in a worse position than when you started. On the other hand, proper management could dramatically improve your life. Beyond the information here, there are loads of other resources online. Take the time to fully understand what you are doing before you do it. 

### How to find the best advisor for you?

Should you prefer to entrust a financial professional with your windfall planning, we’ve built Onesta with the goal of aiding you in selecting an adivsor. Choosing an advisor is an incredibly important decision and will take lots of research in order to ensure you’ve found a good match for you. Here is a quick summary of how to go about finding the best advisor for you.

*Broker vs. advisor:* Financial professionals can be registered as brokers, financial advisors, or both. In short, brokers are paid to sell you financial products, and financial advisors are paid to advise you. Seeing as you are most likely seeking advice, we would recommend avoiding anyone who is registered solely as a broker. Now you are probably wondering, what about those who are registered as both? This is where it gets a bit more complicated. These individuals are paid to sell you certain products and to advise you on what products to buy. If this seems like a conflict of interest, your inclination would be correct. Should you find someone really amazing who is dual-registered, be sure to ask about why they are recommending certain products and if they earn direct or indirect commission for selling those products. 

*Fees:* Advisors can get paid in several different ways - based on commission, an hourlyrate, performance, and more. It is most common to seek a fee-only advisor. Fee-only is an indication that the advisor does not charge commission on the products they sell you. For the reasons listed above, most investors avoid advisors who charge any kind of commission fees because it is typically seen as a conflict of interest. 

*Certifications:* It has become increasinly common to seek our CFPs, CFA, and more. There are over 200 professional certifications that advisors can acquire. Certifications are typically doled out by 3rd party organizations who require advisor to pass a test in order to market themselves with that certification. In my opinion, certifications can be a good sign, but should not be the only thing that you are looking for when choosing a financial professional. There are good advisors out there who have not bothered to get additional certifications. 

*Summary:* There is so much to consider when looking for a financial advisor. I will do my best to summarize the most important details here. 
- Avoid advisors who charge commission fees. This is a conflict of interest and should be taken as a red flag. 
- Make sure they are registered in the state where you primarily live.
- Find someone who has experience in all the areas where you expect to need assistance (windfalls, investments, real estate, tax, estate planning, etc).  
- Find someone who has an average account size that fits what you plan on investing. You do not want to be the smallest or biggest account in an advisors lineup. 
- Find someone who you would feel comfortable inviting to a party. You most certainly do not have to invite them to a party, but you should trust and like this person enough to want to socialize with them. Ideally, this will be a long term partnership with someone who you look forward to speaking with. Treat the process like dating and talk with many advisors. Do not rush into a decision.
- Lookup their profile on Onesta. We have done our best to collect and present the most important information about advisors on their profile here. 
- Ask about what clients they typically serve. It is common for advisors to work with a certain demographic of individuals (military, religious, etc). 

This might seem like a lot and to be frank, it is. I recommend approaching this decision with the same weight that you would approach choosing a spouse. That being said, we are building Onesta to make the process as easy as possible for you. As of now, you can look up any registered professional to get an overview of their business and any red flags that you should be aware of. We’ve also built a browse page where you can filter to find an advisor that meets the criteria that are important to you. 

Finally, we are building a matchmaking platform that walks you through this process and presents you with options that best fit your exact situation. Think of it like a dating app, but for financial advisors. There is no obligation to work with anyone and we protect your personal information to ensure that you do not get spammed. [Click Here](mailto:support@onestafinance.com) to get early access to the Onesta matchmaking platform.  

If you have any questions about this or would like to chat with an Onesta representative for further assistance, fee free to [reach out to us](mailto:support@onestafinance.com) at anytime in your journey. We are here to help.


When you receive a sudden windfall of money, the most important thing is to stay calm and not make any hasty decisions.

5 Common Mistakes When Managing a Financial Windfall and How to Best Manage Your Money

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