Finding the right financial advisor is a significant decision, especially when navigating life's other large stressors. I always remind clients and potential clients that this is a relationship, meaning it needs to be a proper fit on both ends. This includes compatibility in terms of services offered and personality or communication styles. Below, we outline several crucial questions to consider as starting points in this important relationship.
HOW DO I KNOW MY INTERESTS ARE ALWAYS PLACED FIRST?
This is a crucial question to ask because financial professionals can be held to different standards. One of the most stringent is the fiduciary standard, which requires financial professionals to always put their clients' interests above their own. Professionals may be held to this standard through the type of investment management they conduct or by holding a CFP designation.
On the other hand, there are more relaxed standards, such as the suitability standard, which only requires recommendations to be suitable—not necessarily in your best interest. New laws, like Regulation Best Interest, aim to bridge this gap, but it is still essential to ask about the standards your advisor adheres to.
WHAT TYPE OF CLIENT DO YOU SPECIALIZE IN?
Financial advisors often specialize in different types of clients and objectives, ranging from beginning investors to those dealing with multi-generational wealth planning—and everything in between. With so many unique financial planning concepts, specialization is often necessary.
It’s helpful to understand what types of clients your advisor focuses on and to ensure this aligns with your individual situation and goals. If you’re not within their primary focus area and they are part of a team, ask if there is another advisor who might better align with your objectives.
HOW DO YOU GET PAID?
Financial advisors are compensated in various ways, such as through fees or commissions. Two common fee structures include a percentage of the assets under management or a fee-for-service model. A fee-for-service model may involve creating retirement cash flow plans or charitable giving strategies.
Commission-based compensation typically relates to insurance products, such as life insurance or long-term care insurance. Understanding how your advisor is paid is critical because it shows how your interests are aligned with theirs.
WHAT TYPE OF OFFICE SUPPORT DO YOU HAVE?
While there’s no exact right number of support staff for an office, it’s important to know whether someone is available to assist you if your advisor is not immediately reachable. Beyond accessibility, it’s valuable to have knowledgeable team members who are familiar with your unique situation.
WHAT IS EXPECTED FROM ME?
As we’ve mentioned, this is a two-way relationship. It’s important to understand what information you’ll need to provide at the beginning of the relationship and as it progresses. For example, if you’re starting a company or changing jobs, these are conversations to have with your advisor as early as possible.
WHAT TYPE OF LICENSE DO YOU HAVE?
Financial advisors may hold various licenses, certifications, and educational credentials, which can indicate the services they provide and their areas of expertise. For instance:
- Securities licenses (e.g., Series 6 or Series 7) allow advisors to handle stocks, ETFs, or mutual funds.
- Insurance licenses enable advisors to offer life insurance, long-term care insurance, or annuities.
- Certifications, such as CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), or ChFC (Chartered Financial Consultant), reflect additional training in different areas of finance, from investment analysis to holistic financial planning.
Understanding your advisor’s credentials helps you evaluate their expertise and suitability for your needs.
WHAT TYPE OF COMMUNICATION WILL WE HAVE?
Establishing clear communication expectations early on is essential. For some, in-person meetings are important, while others may prefer phone calls, emails, or video conferencing platforms like Zoom.
In addition to the mode of communication, discuss the frequency—whether you’ll meet annually or more frequently, such as quarterly.
These are just a few of the initial questions we’ve found helpful over the years. The key takeaway is that this relationship should be open and transparent on both sides. Never hesitate to ask questions or request additional explanations to ensure you fully understand your financial plan and advisor’s approach.