There is a children’s game called Twenty Questions. In this particular game, you must guess what the other person is thinking by asking twenty “yes” or “no” questions.
Unfortunately, trying to vet Financial Advisors requires a little more effort and information.
First, it’s important to remember that most Financial Advisors are hard-working professionals whose main focus is achieving financial independence and stability for their clients. It is also important for consumers to remember that no one is going to take better care of us than us. It is imperative to keep this in mind when searching for an advisor that will offer the best value and fit for the money that will be spent.
Since engaging a Financial Advisor will require an output of both time and money, asking the right questions and getting the right answers will save time and facilitate better client-advisor relations.
Below is a comprehensive list of questions that should be answered before engaging an advisor. (It can also be a starting point for expanded discussions in areas of special need that clients may be experiencing.)
These questions are not necessarily in order of importance, but the first six questions that I have listed are vitally important in the decision-making process:
*Are you a Fiduciary Advisor? Will you provide a formal written Fiduciary Statement? (If you don’t know or understand what being a Fiduciary Advisor means, please read my previous blog post: ENGAGING ADVISORS- ALPHABET SOUP- PT 2
*What are your credentials? CFP™ ☐ CFA™ ☐ CPA ☐ ChFC ☐ Other:
*How are you compensated? What are the fees? How are fees calculated? What is the fee cycle? Do you receive any commissions or incentives? (No one works free. This question addresses how an advisor is compensated, fees, how the fees are calculated, and how often the fees are implemented.) Most fees are annual and are based on the prior year’s portfolio balance. The fees are normally assessed on a quarterly, semi-annual, or annualized basis.)
*What is your track record? Do you report investment performance net of fees?
*How much experience do you have, and how many current clients do you serve? Will I work with you?
*How do you determine the acceptable amount of risk appropriate for each client?
*What is your investment philosophy? __________________________
Diversification: Y ☐ N ☐
Growth vs. Value: Y ☐ N ☐
Market Timing: Y ☐ N ☐
Types of Investments: ________________________________
*What type of clients do you typically work with?
*How will we communicate with each other? How often will I hear from you?
*What services do you provide?
*How often will we communicate?
*Will I be working with you long-term?
*Have you or your firm been subject to disciplinary or legal actions?
*What services are included in your fee?
*How will you determine my asset allocation?
*Will I ever have to sell everything in my portfolio, even if there’s an adverse tax impact?
*How often will my investment accounts be reviewed and repositioned?
*Where will my assets be held?
*What is included in your financial planning services?
*Are there additional fees for financial planning?
*How often will my financial plan be updated?
*Does planning software use an effective tax rate, and is tax planning available and included in your services?
These questions seem like a lot of work and trouble. But, getting the answers to these questions before you engage a Financial Planner or Advisor will save a great deal of time and confusion and will help to create trust and confidence in the person who will help to shape the life of Future You!
You are welcome to copy and print your list!
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