Yahoo Finance Hire a Financial Advisor After They Answer These Questions
Hiring a financial advisor to manage your money is a no-brainer. After all, you wouldn't operate on yourself, you'd hire a surgeon. You wouldn't (or at least, shouldn't) cut your own hair, you'd go to a stylist.
So why would you try to manage your money when an experienced, well-trained financial advisor can do it for you?
Still, that doesn't mean hiring the first money manager you meet. Like most professional relationships, communications, trust and a high level of comfort are big issues, and should be big priorities for Americans looking for financial help. Thus, it's ideal that potential clients have a good list of questions to ask, first -- even financial advisors want you to do that.
[See: 7 Things Your Financial Advisor Should Not Tell You.]
"I love when clients come in with questions," says Heidi Foster, a wealth manager at American Wealth Management, in Reno, Nevada. "It gives me confidence that they are not going will not be led astray by someone who happens to be a smooth talker, yet is really only interested in improving their own bottom line."
Here are the questions to ask when hiring a financial advisor:
Do you have a sales quota? If your financial advisor has a corporate sales goal, you should clearly understand that their job is constantly at stake if they fail to generate the required revenue, says Devin Carroll, owner at Carroll Investment Management in Texarkana, Texas, and chief blogger at Socialsecurityintelligence.com. "With a sales quota, there's the potential for your retirement account, and the potential commissions generated from those account dollars, to be what stands between your financial advisor keeping -- or losing -- his or her job," Carroll says. Instead, find an advisor who gets paid on a fee basis.
What proprietary funds do you offer? "When advisors offer proprietary funds, they are more likely to receive higher compensation for them, which also means that the funds may or may not be in your best interest," says Marques Lang, a financial wellness coach at Paradigm Consulting & Coaching in Hood River, Oregon.
Are you a registered investment advisor? "This question will determine the extent of the advisor's fiduciary status," Lang says. Ask a follow-up question on whether or not the advisor is affiliated with a broker-dealer. "When advisors are affiliated with a broker-dealer, they're more likely to be sales-driven rather than advice-driven," Lang says. "They also have a different standard of care, so even if they are dually registered as an RIA, they can switch back and forth between roles and this may not benefit the client."
Can you explain your fees? "This is a quick and easy honesty test that I've seen many advisors fail," says Jeff Proctor, finance specialist and manager of the DollarSprout.com blog, in Blacksburg, Virginia. "Most will only disclose their management fees (usually a percentage of assets), without mentioning the expense ratios of the mutual funds or exchange-traded funds they most often use." Even though the expense ratios aren't paid out to the advisor, they're still important to disclose, Proctor says.
How often do you communicate with your clients? This question is essential for setting expectations, Proctor says. "Will you meet once a quarter? Once a year? If something comes up, can you come in on a few days' notice? These are all good questions to ask," he says.
[See: 8 Times to Talk to a Financial Advisor.]
Can you explain your investment philosophy? If the financial advisor can't explain it in a way you can understand (no matter how little you may know about investing), run for the hills, Proctor says. "When it comes to finding an advisor that you can trust, communication is absolutely key."
How long have you been giving financial advice? If your advisor has not been in the business for at least five years (10 years is even better), consider going with someone else, says Mark P. Cowdell, owner of Cowdell Investments in South Jordan, Utah. "Make sure that this is their full-time profession and not some part-time night job." Cowdell says experience is always the best teacher when it comes to managing money. "If you can find an advisor that has been giving advice for 20 or 30 years, that's great. The longer the better," he says. "Those advisors have lived through bull and bear markets. Find out how long they have had their current clients." If the advisor has clients that have been with them for 20 years or more, and you can call them, do that too, Cowdell says.
Do you have any specialized training? Again, the more the better, Cowdell says. "Make sure if they do have specialized training, it's from a reputable company with a legitimate designation, such as a CFP, CLU, or Chfc.," he says.
[See: Battle For Supremacy: Robo-Advisors Versus Financial Advisors.]
What services (specifically) do you offer? If you're looking for a financial planner to help you with retirement planning, Social Security, asset distribution planning, and tax planning, make sure you know what you're getting, service-wise, says Matthew Stewart, owner of Forestview Financial Partners in Delaware, Ohio. "Do you want to work with a wirehouse broker whose primarily interested in gathering assets to manage? Maybe, and maybe not," Stewart says.
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