Whether you are looking to get started with a financial advisor for the first time, or considering hiring a new advisor, being armed with the right set of questions will help you determine if you’ve found a good financial planning partner. After the basic introductions and a quick overview of your current financial situation, forge ahead with the questions below to help guide you in your discussion.
How have you helped other people like me in my situation?
Cut to the chase quickly. No sense working with someone that doesn’t understand or have experience helping people like yourself. For example, if you’re a young professional looking for help in repaying your student loans, working with an advisor that serves primarily mature business owners may not be a great fit. You want to look for an advisor that has helped other people with similar situations. The advantage of this is that you can draw on the advisor’s deep experience. Working with someone that has ‘been down that road’ can save an immense amount of time and frustration. The advisor should be able to present case studies of how they took their clients through the process and what the results were. You don’t want to get caught up being an advisors ‘pet project.’
How do you get paid?
Have the discussion upfront. You won’t be very happy to discover at the end of the meeting the services are beyond your budget expectations. There are three main ways an advisor can be paid. The first is through financial planning fees. Often billed as an hourly rate or flat fee for services performed. The second is through assets under management fees. This is a set percentage, usually between 1-2% of the value of the portfolio being managed, paid quarterly. The third is through commissions. Products such as annuities, life insurance and front-loaded mutual funds pay a commission to the advisor directly at the point of sale. No method is inherently better than the other. It’s important to understand how the advisor expects to be paid for their services. You want to avoid receiving advice that may present a conflict of interest. It’s important to understand your options to help determine which method(s) will make the most sense for your unique situation.
What value are you bringing to the table?
Make the advisor define his value. This is the question that separates the pros from the rookies. A seasoned advisor will have a power-packed benefit statement ready to showcase their talents and skills. The rookie may struggle to articulate their value succinctly. But this doesn’t tell the whole story. It’s important that you find the advisor to be honest, sincere and capable of handling the financial issues you are seeking help for.
What are my responsibilities during the relationship?
This is an often overlooked area. It’s important to know as the client what your advisor expects from you. Now that you’ve established how the advisor helps people like yourself, how they get paid and what value they are promising to bring to the table, it’s now time to find out what your own role will be. For instance, if you are hiring an advisor to put together a retirement income plan so you can retire with financial confidence at the end of the year, that’s going to require a lot of work! You may be expected to have 2-4 sit down meetings, gather financial and bank statements, get a copy of your company’s 401k and pension programs, request a current social security statement, provide copies of your life insurance policies, tax returns, etc. If all these tasks seem too overwhelming, you may fail to even get started. If you know these types of tasks tend to stress you out, let the advisor know and let them describe their suggestions to help you out.
How can I access my accounts?
Seems basic, but important. You’ll want to know if all of your accounts will be accessible from one platform. With mobile technology today, your accounts should be available in the palm of your hand. You’ll also want to know if you’ll receive consolidated statements, paperless reporting, as well as a ‘digital customer vault’ to keep copies of signed paperwork, will, trusts, insurance policies, etc. for easy and secure access. You’ll want to understand the process for making contributions and withdrawals and the rules regarding the settlement of trades and client signatures.
How often will we communicate?
It’s critical to establish and agree upon a communications schedule. As with any relationship, the better the communication, the better the outcome. If you expect to be called once a month and your advisor emails you once a year, it’s safe to say you’ll be wildly disappointed. Don’t be afraid to tell your new prospective advisor how often and by what means you prefer to communicate.
Can I ask you more questions?!
Don’t stop with just these questions. Keep interviewing the advisor until you feel you have gained the information you need to make an informed decision.