Planning for the future is important, so of course, it’s also important to choose who you will trust to plan for that future. Picking a financial advisor is an important step in wealth planning and building a family legacy, but unfortunately, many people make this decision without asking the right questions. Below are six questions we recommend you ask before choosing your financial advisor.
#1: What are your credentials?
Make sure you know what kind of experience your potential advisor has. There are a variety of titles and certifications today, including Certified Public Accountant (CPA), Certified Financial Planner (CFP), Certified Fund Specialist (CFS), Chartered Financial Consultant (ChFC), Chartered Financial Analyst (CFA), Chartered Life Underwriter (CLU), or Juris Doctor (JD). If your goal is a secure retirement, you will probably want to consider either a Certified Financial Planner or Chartered Financial Consultant.
#2: What is your firm’s structure?
While you may only be hiring the services of a single financial advisor, it is important to know a few things about the firm that person works for. How many associates does the firm have, and what are their skills? What is the advisor turnover rate at this particular firm? In today’s market, it is often easy for firms to discuss investments in terms of story and talk about their bright, new talented stock pickers who are going to beat the market. However, if you dig a little deeper, you may find that none of these talented people were at the firm a few years ago and, in fact, all of their advisors are new. If you’re interested in long-term investments, this may not be the right place for you.
#3: What is your fee structure?
In other words, how do you get paid for what you do? Some financial advisors earn commissions, while others are fee-based. Often, those who are paid commissions on the investments they make may not have your best interests in mind. However, even with fee-based advisors, you need to be careful. Some work on an hourly rate, while others may earn 1% of your annual assets. Think through your options carefully, and decide which best fits you and your current financial resources.
#4: What is your investment approach?
Ask about the types of investments the financial advisor’s firm typically makes and how the advisor makes money from those. Advisors who are affiliated with a bank may earn commissions from selling package investments that include things such as hedge funds and private equity. Ideally, you want an advisor who will be able to develop a diversified portfolio for you based on the best options available, not on the one that will make him or her the most money. If an advisor is going to limit your choices to a narrow list of investments, you need to know that ahead of time so that you can decide whether this is truly the best fit for you.
#5: Do you accept fiduciary responsibility?
A fiduciary is legally required to act in the best interests of his or her client. They are also required to disclose their fees to clients and describe how they are compensated for their work. On the other hand, a non-fiduciary might make a commission from selling you an investment that isn’t truly the best choice for you. If your potential advisor accepts fiduciary responsibility, he or she should be able to provide you with proof of this in writing.
#6: What services do you provide?
Some people may only offer advice on your investments, while others may provide extensive financial planning, insurance services, estate planning, tax planning, and risk management. A firm with a team of in-house experts such as wealth planners, research analysts, insurance advisors, etc. may be able to offer you more of these services. Make sure you find out who will be working with you, whether directly or indirectly, and who you should contact if you have any questions.
Family wealth planning is a complicated subject, and financial advice for families abounds in online magazines and websites. The questions covered here are only a few of the topics you should cover with your financial advisor before hiring him or her. Don’t be in a hurry to make this decision. Remember that it’s more important to find the right person than it is to find someone fast.