Knowing the answers to these questions can simplify your search for the right firm.
Working with a financial advisor can offer valuable peace of mind. But putting your portfolio in the hands of a professional requires the utmost level of trust. Before starting a relationship with a financial advisor, ask these questions to find an experienced, qualified advisor who’s ready to help you align your time and money with your passions and purpose.
Are you a fiduciary?
When exploring your options for wealth management services, it’s important to find a financial advisor who serves as a fiduciary. A fiduciary is a person or organization that acts on behalf of a client to manage assets. In doing so, the fiduciary has a legal duty to provide advice only in the best interest of their client and to not put their interest ahead of yours.
An advisor who does not meet the high standard of fiduciary care can make recommendations that pay them a commission but do not benefit you or carry excessive fees.
What credentials do your advisors hold?
Look for the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation from the CFP Board or the Chartered Financial Analyst (CFA) designation from the CFA Institute, both industry-respected certifications that require extensive training and testing. Advisory firms offering tax planning should include professionals with the Certified Public Accountant (CPA) designation.
What is included in your scope of services? What benefits can you provide in addition to investment advice?
Many financial advisors specialize in one area, often retirement planning. Others provide comprehensive financial planning that covers investments, retirement, tax and estate planning, philanthropy, insurance, higher education planning, and other relevant areas on your balance sheet.
Even if you don’t currently need an advisor with expertise in a more niche area, you will likely want to stay with the same professional as your needs and objectives evolve.
What is your investment philosophy and approach?
An advisor should be able to detail these three key areas of their investment strategy:
- Investment types and diversification: Will the advisor expose your funds to a variety of asset classes outside of stocks and bonds such as annuities, index positions, and mutual funds? Can you access global investments and assets in emerging markets in addition to shares in large domestic firms?
- Value vs. growth assets: Does the advisor emphasize one of these areas or take a more balanced approach?
- Market timing: Does the advisor try to time the markets? This risky approach can result in significant financial loss and short-sighted decisions.
Avoid working with an advisor or firm without a clear investment philosophy that complements your own approach.
How will our relationship work?
Find out whether you will work with a dedicated advisory team, which will give them a chance to learn about your preferences, objectives, risk capacity, and other relevant characteristics. Some firms rotate clients among their advising teams, while others place each client with a dedicated advisor and accompanying team.
You should also learn whether the advisor’s preferred communication style dovetails with your own. How often will you be in contact? What’s the best way to reach out to ask questions and schedule appointments?
How is your firm structured? What resources do I have access to?
While small firms offer personalized attention, large firms are more likely to provide expanded services with access to experts outside your immediate team. For example, you may have complex tax issues that require a financial advisor who works closely with a CPA or tax attorney on staff.
How would my service team interact with any outside counsel or experts I retain?
Small business owners may need a financial advisor who can fulfill all the same duties of a chief financial officer. When you hire a fiduciary who provides this type of comprehensive service, they will work closely with outside counsel and experts as needed. Not every financial advisor can fill the large shoes of a Personal CFO, so it’s important to screen firms for experience and ability.
Do you work with other clients like me? Do you have expertise or experience with clients at the company I work for?
It can be valuable to hear how an advisory firm helps clients with similar life circumstances, financial planning needs, and long-term goals. What’s more, if your job comes with a complex benefits package or compensation structure, you should ask potential advisory firms how they approach such client relationships.
What happens to me if the advisor I work with retires or is no longer with the firm?
The makeup of advisory teams changes over time, especially at larger firms. The best advisors have deliberate processes in place to handle such turnover. Ask prospective advisors to walk you through a case study or two of how a client was transitioned internally to a new team or introduced to different service team members.
What fee structure do you use? Do you earn commissions on the funds you recommend?
Familiarize yourself with the various types of fee arrangements financial advisors may use. Fee-based advisors charge clients a fee while also collecting compensation and commission for recommending certain investments. By contrast, fee-only advisors earn only the fee you pay for service and do not receive commission or third-party compensation.
Ask to see the firm’s Form CRS, if it hasn’t been provided to you already. This “plain English” disclosure document will walk you through the firm’s fee arrangements. It also covers important information like disciplinary history.
In addition to your management fee, what are the average expense ratios on your portfolios?
Asking this question helps you understand the underlying costs associated with your portfolio and can give you a better sense of the advisor’s investment philosophy as well as the efficiency of the funds they select. Expense ratios will vary based on the management philosophy of the fund, administrative costs, and turnover rate. Higher expense ratios (1-2 percent) can add unnecessary drag to your portfolio and dampen your annual return.
Where will my assets be held?
Financial advisors should place your assets in an account with a vetted custodian. Large financial institutions such as Fidelity and Charles Schwab provide custody services that protect your interests.
What opportunities do you offer clients to connect with other like-minded clients?
Some advisory firms may offer you ways to make meaningful connections with other clients in areas beyond the balance sheet. Such engagements could include social events, networking, investment groups, volunteering, shared hobbies, and more.