You have probably seen the articles. Some are long. Some are short. The common thread is that the writer claims there is one perfect and absolute set of questions to ask (and corresponding answers) whenever you interview a potential financial advisor. I don’t think so.
Behind the Headlines: The Fiduciary Rule
Over the past few years, proposed regulatory changes to who is held to the standard of fiduciary responsibility, how fees are charged, and transparency by financial advisors have fueled intense media attention. Although the original proposed rule applied only to specific types of accounts, transactions, and representatives, many of the media stories presented a one-size-fits-all series of questions to ask your advisor.
Let’s look at a few examples of why, depending on your financial life stage and situation, a one-size-fits-all series of questions to ask your advisor may not work for you.
When you are just starting out – either right out of college or in your first “real” job – your focus is likely to be on paying bills (rent, phone, food, student loans, etc.), putting a few bucks in a savings account, trying to stay out of credit card debt and possibly starting to think about investing when you have some extra money.
Typically, you will want to ask if an advisor provides hourly financial planning (preferably a Certified Financial Planner™) versus one that only does investment planning. The conversation with the financial planner will focus on developing a budget (cash flow), establishing an adequate savings account and earmarking funds for investing (401(k), IRA/Roth IRA, or after-tax account). Some firms will offer these services as separate packages to help keep your costs down, while others may offer managed investment accounts with a smaller minimum investment and lower fees, and others will not work with you at all unless you establish a sizeable investment account. Your financial priorities may look like this:
- Balance Your Budget
- Establish and Maintain Good Credit
- Manage Student Debt
- Merge Finances with a Loved One
- Purchase a Car or House – or Both
The next stage of life – becoming established -- may find that you now have a consistent budget, an adequate savings account and even some retirement investments. This means that your questions will be significantly different than someone just starting out. Your questions may focus on what services are available to help you set goals (short, mid & long-term); what additional investment options should be considered; whether insurance is needed to help protect family and/or business interests; college-savings options if you have children; setting aside funds for big-ticket purchases; and possible income replacement sources in retirement.
It’s likely that these questions sound more “major” than the ones being asked when starting out and will require many more conversations between you and your advisor. Ideally, this will become an on-going advisory relationship so that there can be frequent check-ins to make sure that goals are still current and that you (or you and your partner) remain on a course towards them. These priorities may feel familiar:
- Purchase Your First Home
- Start Growing Your Family
- Consider Your Insurance Options
- Plan for Education – Daycare through College
- Save for Vacations
These are often your highest-earning years and when you find that the right financial counsel can make an enormous difference in how well you sleep at night. Your focus turns to how to balance optimizing wealth accumulation with preparing for the unknown and enjoying life now.
Tax strategies and continued saving for retirement may be combined with multi-generation financial needs as a member of the Sandwich Generation. Your priorities are likely to include:
- Determine Your Best Tax Strategies
- Prepare for the “What Ifs” of Life
- Save for Retirement
- Look After Your Kids or Aging Parents
- Invest in a Second Home
Nearing & Enjoying Retirement
In this financial life stage, you or your partner are either close to or already in retirement. Your questions are different because you are concerned with maintaining a particular lifestyle, replacing the income that you may no longer be receiving, and protecting what you can for loved ones.
These conversations can lead to meetings with a multidisciplinary team of professionals, including attorneys, to make sure that estate planning documents – wills, Powers of Attorney, Health Care Proxies and Trusts – are current and correct. You will want to ask your advisor if they are willing to work with other professionals; this is critical to keeping everybody focused on your goals, which could include:
- Develop Your Estate Plan
- Coordinate Retirement Income
- Determine Your Insurance and Long-Term Care Needs
- Flex Your Philanthropic Muscle
- Make the Most of Your Retirement
Financial wellbeing is more than what’s in the bank. Your financial journey is deeply personal, affecting your health, state of mind, family dynamic, and work. The best match as a financial advisor for you now is exquisitely dependent on who you are and where you are in your life journey. Here are seven questions to ask a financial advisor regardless of where you are now.
7 Questions to Ask a Financial Advisor
The right answer will depend on who you are and where you are in your life journey.
- What experience do you have?
Find out how long the planner has been in practice and with what types of firms they have been associated with. Ask for a brief description of work experience and how it relates to the planner’s current practice.
- What are your qualifications?
Ask what licenses and other financial services credentials your planner or advisor holds. Find out how they stay current with changes and developments in the financial planning field. CFP® professionals expand their knowledge and must stay up-to-date through mandatory continuing education courses.
If the advisor holds a designation or certification, you can check her background with the relevant professional organizations.
For CFP® professionals, visit cfp.net or call 800-487-1497.
• For individuals and firms registered as a RIA, visit the Securities and Exchange Commission (SEC) at https://adviserinfo.sec.gov/.
- What services do you offer?
Are the services you are most interested in at this point in your life available?
- What types of clients do you typically work with?
- How will I pay for your services? What is your usual hourly rate, project fee, investment management fee schedule, or commission?
For those starting out or experiencing a life transition, paying a project fee for a comprehensive financial plan including “what if” scenarios may deliver the most value at the least cost. For investors with small, inactive, or legacy accounts, a commission-based arrangement may be most cost effective. For do-it-yourself investors, the lower fees for a software-guided account may be attractive. For investors with complex financial situations or significant assets, establishing a full-service relationship that includes financial planning and ongoing investment management assistance may be most appealing. The best answer for you will depend on your unique situation.
- Do you sell or recommend proprietary products or services?
- Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
Investment advisers file Form ADV to register with the SEC and/or the states. You can verify the response to this question by checking Item 11 Disclosure Information on the advisor’s ADV form at https://adviserinfo.sec.gov/.
Christina Ubl, CFP® CDFA™ is co-owner of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm and registered investment advisor that provides strategic financial and investment planning for individuals and small businesses in the Lake Champlain Valley region. For a list of states in which we are registered to do business, please visit www.clutewealthmanagement.com.