A Beginner's Guide to Financial Advisors: Part 2

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What should I ask during my initial consultation with an advisor?

Whether you scheduled your first free consultation or are planning on scheduling, there 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, there will always be a standard set of questions that should be asked.

Below we've compiled a list of the top 13 questions that should be asked during your initial, free 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? 

As we mentioned in Part 1 of this guide, 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 Finance Friends 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 immediately.

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! If you haven’t already, try taking our quiz or browsing all the advisors in our database to find your perfect advisor today!

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