With so many options in the financial advisor marketplace, settling on one can be a complicated process. That’s because not all advisors come with the same qualifications or level of expertise. Before hiring a consultant to help you plan for your financial future, here are a few questions you should ask to help you decide who is the right advisor for you.
1. What are the services you offer and how often?
Not all advisors do all things. That’s why it’s important to ask a potential advisor if they are capable of offering all of the services you seek. You may be looking for help in creating a savings plan or seeking someone to dole out tax advice and preparation. You may also want an advisor that can help you manage a stock portfolio, or one that will help you with budgeting or getting out of debt. Some advisors are better equipped than others in helping you create investment strategies and retirement and estate planning. (For more on this topic, see: How To Find The Financial Advisor Of Your Dreams.)
Whatever your needs are, make sure the advisor you choose can meet all of them. It’s also within your rights to ask an advisor what actions he or she will take to take to implement, update and maintain any plan that you devise together. You may want to make a plan for meeting with your advisor at set times during the year to review the results of their work and check on your investments. You should also find out if your advisor will always meet with you directly or if he or she is part of a team that rotates client meetings.
2. What type of education and certifications do you hold?
If an advisor has a profile on LinkedIn you can start reviewing his or her background. Find out where they went to college and if they have any advanced degrees or certifications. Also ask to see their work resume, and find out which firms they may have previously worked for and why they left.
There are several different licenses that financial advisors can secure. The most familiar is the chartered financial analyst (CFA). These analysts have a range of expertise in securities, financial analysis, investing, portfolio management and banking. A certified financial planner (CFP) is one step above a CFA. They have booked at least three years of experience and have passed a series of comprehensive tests. You can check the CFP Board’s site to verify that an analyst has CFP certification status. There is also the Chartered Financial Consultant (ChFC) certificate, which uses the same core curriculum of the CFP, but does not require a comprehensive board exam. If you are looking for someone with more of a retirement focus you may want to seek out a chartered retirement planning counselor (CRPC), who has completed intensive training in retirement planning through the College for Financial Planning. The other option is to go with a certified public accountant (CPA), with a specialty in tax preparation and planning. Or try a personal financial specialist (PFS) who is a CPA but has also undergone additional education and testing, thereby offering more expert financial planning qualifications. Some accountants obtain a personal financial specialist (PSF) certification in order to better help clients with comprehensive financial planning. (For related reading, see: Want To Be A Financial Planner? Click Here.)
Remember anyone can call him or herself a financial planner, so checking out and advisors certificates or degrees is key. Some financial advisors may be Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs). That means they are compensated with fees and are financial fiduciaries, which means they must adhere to the highest ethical standards in the financial services industry. (For more on this topic, see: What Is A Registered Investment Advisor?)
You can also search out the background of a financial planner or advisor by looking them up on specific sites such as those provided by the Financial Planning Association and the National Association of Personal Financial Advisors.
3. Can I talk to some of your current clients?
Check references. Ask your prospective advisor to put you in touch with some of his or her clients. Try to speak with people who have been looking for services that are similar to what you are seeking from the advisor, be it retirement planning or investing. Ask them how often the advisor communicates with them and in what ways. Does the advisor respond quickly to questions? Does the advisor seem trustworthy and ethical? What do they particularly like or not like about the advisor? You could also ask the advisors’ current clients about the types of services they have provided, the amount of assets they manage, how the quality of their service has been. Or more plainly, why they chose this particular advisor.
Make sure you also meet the advisor in person to get your own feel for how they treat their clients, and how they ask and respond to questions. Conduct your own interview and ask the advisor to provide you with a presentation of their services. Once you have interviewed and researched a few advisors you can compare and contrast them in order to make the right decision for you.
4. What is your performance record?
Ask any potential advisor to provide some kind of proof that he or she has performed well for clients in the past, through both up and down markets. Ask if the advisors books are audited and by which firm or by whom. Talk to the auditor if possible to get their feedback. Do some background web searches on the advisor to see if they have been involved in any ethics violations or discipline proceedings, or committed any fraud such as excessively trading securities, misrepresentation, or been involved in any formal client disputes or legal action.
5. How do I pay you?
The fee structures for paying analysts for their services vary, but typically you can either pay an hourly rate or a flat fee per month rate. Some charge a percentage of assets managed, which is usually no more than 2% of a portfolio. Advisors that are “fee-only” do not earn commissions for selling specific investments to clients.
Others may charge a commission on securities and financial products that are bought and sold. A combination of payment methods may also occur. Compensation plans that involve the numbers of trades of securities or the purchasing of certain investment products should probably be avoided in order to negate any conflict of interest. Any advice given should not be dependent on the advisor profiting from it as well.
Before you sign on to work with an advisor, you should make sure that the rates, fee structure and commission schedule are set out clearly, so there are no surprises later down the line. Make sure to get any compensation agreement fixed in writing. (For more on this topic, see: Paying Your Investment Advisor: Fees or Commissions?)
The Bottom Line
The right financial advisor is not always evident. Make sure you shop around, ask the advice of people who are familiar with the advisor, or the advice of people you know and trust. Do your homework; getting references and reviewing an advisor’s history and qualifications is key. Find an advisor that suits your specific needs and offers a payment plan that you are comfortable with. (For more on this topic, see: Shopping For A Financial Advisor.)
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