Using a financial adviser is a smart idea if you are unsure of how to manage your portfolio or don't know what to do with a large inheritance. However, not all financial advisors are created equal, and some might be trying to line their own pockets with commission-based product sales rather than give you the best advice for your investment and retirement.
In March 2018, the courts also rescinded the added requirements for advisers in the DOL Fiduciary Rule which went into effect June 9, 2017, with full compliance slated for January 1, 2018. The court decision makes it all the more important to ask more questions with your financial adviser and ultimately to be more aware of the investments and fees you are paying in conjunction with your advised investments. Here are several questions you can ask your adviser this year to ensure you are getting the best advice.
1. How Do You Invest?
Surprisingly, very few individuals will ask this question of their adviser. However, it can give you better insight into how they manage your portfolio in comparison to their own. Of course, you cannot expect your adviser to release their personal portfolio to you, but if they are willing to share their personal strategies to ensure success, then they might implement the same strategies for your portfolio. Along the same lines, you can also ask for an explanation of strategies and investment philosophies.
2. How Much Do You Charge?
It is a good idea to know what your costs will be upfront. If your adviser is paid a fee and does not earn commission on products, then you can rest assured they will likely act in your best interest rather than just be a salesman. Keep in mind that most professionals charge 1% of investments managed annually and any investment you make through an adviser may include sales commissions arranged with the fund company.
3. What Are Your Qualifications?
Learn what certificates your adviser holds. Many firms will only require their advisers to take minimal courses or pay a fee. You want to avoid these advisers. Instead, look for one of these three advisers:
- A Certified Financial Planner (CFP)
- A Chartered Financial Analyst (CFA)
- A Certified Public Accountant (CPA)
It's also a good idea to choose an advisor that has at least a decade of experience dealing with clients that are similar to you. You also want your adviser to have a clean record, meaning they have not had issues with regulators or the law. It might also be wise to ask if they have ever been sued. You want to make sure there are no red flags before trusting an adviser with your hard-earned money.
Within this realm, you may also want to ask about the adviser’s specialty and how many clients they take on each year. This will help you to get a feel for the market segment the advisor focuses on if any and the breadth of investing advice they offer. Some investors may want someone focused on a market niche while others appreciate a broader range of advice.
4. Do You Offer Hybrid Robo-Advisor Services or Access to New Technologies?
Robo-advisor technology and advanced personal financial management platforms are being integrated across the financial adviser market. Many large firms are partnering with robo-advisers and new technologies to help their investment clients access the best and most up to the minute opportunities for trading their accounts individually and with the help of their advisors. Technology and personal account management can also be a big factor for choosing an adviser as many investors look for the greatest transparency in following their account online and communicating with their advising company. Hybrid robo-adviser platforms can also offer some of the best channels for receiving the most well-vetted access to firm offering and market insights.
5. What Are the Best Options for My Liquid Savings Fund?
Most investors want to focus on liquid savings and retirement with help from their advisers along the way with everything in between. A liquid savings fund is typically the first line of defense for personal investments and can be one of the first reasons to start talking with a financial adviser. Liquid funds can be used for emergencies or just saving for luxury purchases. At the least talking with your adviser about the best options for this type of portfolio can be one of the most important first questions to discuss.
The Bottom Line
You wouldn’t pick just anyone to watch your children, especially without first interviewing them and checking out their background. Therefore, you shouldn’t trust your money or retirement savings with just any adviser. Don’t be afraid to ask questions and do your research. It could save your investments in the long run.