Making the choice to hire a financial advisor is a big decision, but after deciding to work with a financial advisor, finding someone that you trust and are comfortable working with can seem like an even bigger challenge. Most people start the process by asking friends or co-workers if they work with or know someone who is an advisor, or searching google for “name of their town + financial advisor” and seeing what pops up.
After you’ve put together a list of a few advisors to look into, how do you actually evaluate who to work with? I suppose you could always go by their photos on the website; are you more comfortable with jeans and a sportcoat guy or is it pantsuit/suit & tie all the way?
Rather than evaluating them on how close their office is to your house, or if you have the same choice in fashion designers, I’ve come up with a few questions that you should consider asking them instead. By starting with the questions below you’ll learn more about their business and what types of clients they work with, helping you to make a more informed choice.
Are you a fiduciary?
A fiduciary is someone who is legally bound to make decisions and recommendations that are in the best interest of their client regardless of the impact on the advisor. I believe this is the best and most honest way for a financial planner or advisor to work with clients. When your advisor is a fiduciary it reduces the chances of a potential conflict of interest between you and your advisor.
You can feel confident that you are receiving the best advice for your situation, rather than being sold investments or financial advice that may result in higher sales commissions for your advisor.
How do you get paid?
This may seem like a surprising question to ask since you are the client and expect you will pay for your advisor’s services. Aside from the question of how you pay your advisor, whether that’s in the form of an upfront fee, a monthly retainer, hourly, for assets under management (AUM); you may not be the only one that pays them.
Your advisor could also be paid a commission by Mutual Fund companies in exchange for selling their specific funds to clients. In this case the client, you, are still paying the planner, but indirectly through the price of the investment or insurance products.
A fee-only advisor on the other hand is exactly what it sounds like, an advisor that is paid only in direct fees by you the client. With a fee-only, fiduciary advisor you can be sure to understand how much you are paying and what services you are paying for.
Are you stuck in the 20th century?
Maybe a more polite way to ask this question of an advisor is with a set of questions: How do you usually communicate with clients and what technology do you use for managing your client’s information? Do all client conversations take place in the office? Do you use electronic signature software or do all documents require a physical signature, which can mean more time spent visiting the office, printing, signing, and faxing documents. How long does it take you to respond to emails or texts? Do you text?
Some of these questions might be more important to you than others, maybe you are unavailable during normal business hours so email and text are the best ways for you to communicate. Or you travel a ton for business and will need to use skype for meetings most of the time.
We all lead busy lives these days and you need an advisor that is comfortable communicating with you in the way that works best for you. Whether that’s with in-person meetings, over email, on a skype or phone call, or texting, you should find an advisor capable of having conversations with you where you are most comfortable.
What does your typical client look like?
One of the keys to a successful client-advisor relationship is for the advisor to have an understanding of the client’s specific situation, goals, needs, and the options to achieve them. You will have a more successful relationship working with an advisor that specializes in clients with a similar profile to yours. As an example, an advisor who specializes in working with doctors will be better suited to continue working with doctors as she builds up expertise about the specific challenges and opportunities facing doctors and the potential solutions and recommendations available.
A good way to find out if a potential advisor is a good fit for you to work with for you, is to ask about the types of clients they currently help. Do they work mainly with small business owners and entrepreneurs, do they work with folks in their 50s and 60s making their final preparations for retirement, or do they work with young families and individuals helping with investment decisions and college debt/savings strategies? All three of these groups require financial advice, but the financial plans for each group would tend to look quite different. Regardless of which group you belong to, you want to make sure your advisor is specialized and knowledgeable in the areas that affect you.
Making your selection
Asking potential advisors these four questions will help you to find an advisor that has the qualities and expertise that you are looking for. And almost as important, by having a plan in place for how to evaluate potential advisors, you’ll feel more in control of the process and feel confident that you are selecting someone who will be a good fit to work with for years to come.