When it comes to New Year's resolutions, a recent poll showed that finding a financial advisor was first on the list for many people. Finding a financial advisor is easy, but finding the right financial advisor is much more challenging. Trust, experience, report, and affordability are all factors. The following list of questions is a great place to start. Even if you?re not shopping for a new advisor, do you know how your current advisor would answer these questions?
- Why did you become a financial planner? (This is a nice icebreaker. You should hear a response along the lines of how they like to help people improve their lives. If they say ?for the money?, stop the interview and walk out the door immediately.)
- What is your educational background and experience as it relates to personal financial planning? (Just because somebody has a polished presentation and a charming smile doesn't necessary mean they are qualified. You can't judge a book by its cover. Dig deeper. I know of several advisors who are in their fifties but yet only have 1-2 years of experience because this is a second career for them.)
- What are your financial planning credentials/designations and affiliations? (There are many credentials, but these are the most widely recognized. Preferably your advisor would be associated with two or more.)
- CERTIFIED FINANCIAL PLANNERTM Professional (CFP?)
- NAPFA ? Registered Financial Advisor (fee-only)
- Chartered Financial Consultant (ChFC)
- Chartered Financial Analyst (CFA)
- Financial Planning Association (FPA)
- Certified Public Accountant (CPA)
- Other (i.e. MBA, JD, EA, AIF, CLU)
- What are your areas of expertise? (The common responses are investments, retirement planning, and insurance. Some advisors do concentrate on such specialties as real estate, divorce, and stock options. Find an advisor that specializes in your need.)
- Please describe your most common engagement / service provided? And the type of client or client situation you target? (This ties in with the above question. Make sure the answers are consistent and that your advisor is primarily working with people like you.)
- Are you a registered representative of any broker/dealer? And are you a licensed insurance agent with any company or agency? If so, which one(s)? (A yes answer will tell you a few things. First, commissions probably make up some of the advisor's compensation. Second, there is another entity involved. One that is paid a percentage of the advisor's profits. Beware that this sort of environment sets the table for a conflict of interest.)
- Are you a registered investment advisor (RIA)? With the SEC or the State? (An RIA is someone who is allowed to charge fees for their advice. If they are registered with the SEC, they have $25,000,000 or more under their management. If they are state registered, they probably have under that amount. This gives you some insight into how big the firm is.)
- Will you acknowledge in writing that you are a fiduciary? (A fiduciary is someone who will put your interests ahead of his or her own. They will always work in your best interest. If the advisor answers no to this question, do not work with them, it's that simple.)
- Do you or the firm you work for have any marks against your compliance record. Can you provide me a copy? (For fun, I once requested the disciplinary actions against a well-known brokerage company. I was sent a stack of documents the size of a phone book. Also ask to see the advisor/firm's ADV. This document provides additional disclosures and explains how the firm operates.)
- How are you compensated? (This is a very important question to ask. It allows you to know what to expect going forward.)
Fee-Only, please define your method of determining fees.
Fee and Commissions (Fee-Based), please define how each are determined.
Other (such as royalties or referral fees)
- Do you have minimums for assets, account size, or annual fees paid? And what is your typical fee or charge for an engagement? (This question saves you time upfront. You do not want to be one of their small clients; they may not pay enough attention to you. On the other hand, if you are one their biggest clients, they may not have the experience to meet your needs.)
- Do you provide a thorough written analysis of one's financial situation and recommendations? Can I see an example? (How much time do they spend gathering your data and goals before giving you an analysis? Is it a cookie-cutter plan or can you tell there is a level of customization.)
- Do you offer assistance with implementation with the plan? Please describe. (Pay attention to your advisor's responses. Do they just talk about products or do they talk about service and follow up as well.)
All of these questions are meant to help you gauge what sort of advisor you are or will be working with. While it is not comprehensive, this list provides a starting point. I've said it before, think of yourself as a business. Would you hire an employee without a thorough interview? Find and hire the best. The future of your ?business? depends on it.