I have worked in financial services for the past nine years. During this time, I have handled many “cold calls” and find few people know the right questions to ask. This concerns me greatly, as good financial advice is equal to good health and overall wellness.
Here are my six tips for hiring an advisor….
1. Interview three advisors from different firms.
Remember, you are choosing a financial professional to help guide you through life’s many transitions. Think about:
Was your initial phone call returned promptly?
Was a meeting set and was preparation suggested?
At the meeting - did the advisor talk or listen?
Was the focus on financial products or your personal goals?
2. Inquire about investment strategy.
Each advisor has a unique investment strategy. For example, if you prefer to focus on individual stock selection, an advisor that prefers fixed-income investments or passive investment strategies may not be a great match.
Ask about access to investments and wealth accumulation strategies. Ask about portfolio management, risk tolerance, asset allocation and implementation process.
Ask how your investments will be monitored and when account reviews are scheduled. Ask if there is a minimum number of assets under management required to become a client.
The type of firm an advisor works for greatly impacts what financial services they can offer and the decisions they make on a daily basis.
As a bank or wirehouse advisor, you are often required, and often incentivized, to use the proprietary products and services the firm dictates. Independent advisors have access to a wider range of solutions, meaning they can match services and products more specifically to clients’ needs.
3. Ask about credentials.
To give investment advice, financial advisors are required to pass a test. Ask the advisor about their licenses, tests, and credentials. Financial advisors’ tests include Series 7, Series 66, or Series 65.
Aside from licenses, there are advanced degrees in financial planning. An advisor may have a Certified Financial Planner (CFP®) designation or Chartered Financial Analyst (CFA) designation.
4. Understand how the advisor is compensated.
Financial advisors are typically compensated by a set fee on the assets that they manage (they are called fee-only advisors), some have a flat rate charge, some bill hourly, and others are compensated by the commission they receive for selling you an investment product.
Ask how the advisor makes money on assets not under management, specifically insurance and annuity products. Some fees are negotiable, and it is appropriate to inquire.
5. Hiring an advisor who Is a fiduciary.
Advisors who are “fiduciaries,” are legally obliged to act in your best interest. They usually charge a flat salary or fee or receive a cut of the assets under management. Because of the compensation structure, advisors are seen as having fewer conflicts of interest than brokers.
Think of a fiduciary as a grocer: Your doctor tells you to eat more fruit — apples and bananas are both fruit. If you ask your grocer which fruit is preferred — your grocer will ask what dietary benefits are desired? Vitamin C? Potassium?
Advisors who are not “fiduciaries” are only under the obligation to recommend suitable investments. Suitability requires investments that are neither too risk-friendly nor too risk-averse within an investor’s portfolio. Therefore, the advisor may (which is perfectly legal) recommend the investment with the highest payout to the advisor.
To find out if a firm is a Registered Investment Adviser, and thus a fiduciary, it will have what is called a Form ADV filing available to be viewed online. https://adviserinfo.sec.gov/search/genericsearch/firmgrid.
6. Visit brokercheck.com.
The disclosure section contains information about certain criminal, civil, or customer complaints involving brokers, as well as certain types of employment termination disclosures.
Jill Gookin lives in Lexington, Ky and has worked in financial services for nine years.