Learn more about Brett on NerdWallet’s Ask an Advisor
Asking someone to manage your lifetime savings and make crucial investment decisions that affect your financial future can be a trying experience. You might be wondering, what questions should I ask? How do I know whether the person is qualified? What if I choose the wrong person?
Taking all that into account, I’m recommending five questions to ask when you’re checking out a financial advisor. The responses you get should help you make the right decision.
Are you a fiduciary?
The fiduciary vs. suitability standard has been a popular topic in the media lately, but the primary point is that a fiduciary puts the client’s interests first at all times. It’s rather sad that this question needs to be asked at all. But the fact is that some advisors work for you and some work for their broker dealer. I believe wholeheartedly in the fiduciary standard and that is why I decided to become a registered investment advisor and a certified financial planner.
What are your credentials?
Just as you would with a physician or attorney, it is prudent to ask about the advisor’s experience, professional designations and background. All of this can also be found online on the advisor or firm’s form ADV. A good starting point would be to ask advisors whether they have their certified financial planner or CFP designation. Certified financial planners are held to a fiduciary standard and required to meet a number of strenuous requirements, including the passing of a comprehensive, two-day board exam.
Whom do you work with?
If you have back issues you would see a chiropractor, not a general practitioner. If you need to establish a trust you would see an estate planner, not a defense attorney. The point is that it pays to work with a specialist. I work with families to help them develop college planning and income sustainability strategies. This works out well because I am passionate about these topics, can relate to them and have experience in dealing with these situations. Some planners work with everybody, but like the old saying goes, “Jack of all trades, master of none.”
What are the total costs for your services?
With cost being one of the primary determinants of future investment performance, it’s imperative to ask the total cost of doing business. This includes the advisor’s asset management fee, any commissions and the internal expenses tied to the actual investments and/or product. Most prospects I talk with are surprised to realize that they’re paying high, upfront commissions, over 2% in ongoing costs and receiving little value in return. This is another reason to work with a fiduciary.
What are your services and investing philosophy?
Some advisors specialize in asset management services and others incorporate comprehensive financial planning. If they offer asset management services, have them explain their investment philosophy and process. Do they believe in a buy-and-hold strategy or do they employ a more active approach? Ask them to walk you through their planning process. Do they utilize a proactive or reactive approach? Will they reach out to you to take advantage of changes in the tax code or mortgage rates? You need to find an advisor you’re comfortable with and suits your needs.
My son recently had a homework assignment that included asking me questions about my profession. One of his questions was, “Dad, how do people know which advisor they should work with?” That hit home and prompted me to write this blog. I figured if he was thinking about it, there was a good chance others were as well.
I hope these five questions help you find a financial advisor who’s right for you.