As an individual investor, if you’ve reached the point where you feel ready to hire your first financial advisor, you’re going to want to prepare a list of questions in order to evaluate possible candidates.
Each investor is different, and your specific needs are going to be unique to you. These questions will help you determine whether the advisor you’re interviewing is right for you.
Even if the advisor in question comes heavily recommended from someone you trust you have to remember that they may have slightly different preferences when it comes to what they’re looking for. They might not require as much one-on-one time as you do, or they may have different views on which investment approach is best.
The following list of questions should serve as a rough guide, but don’t hesitate to ask specific questions that address you personally. There’s no shortage of financial advisors in the world, so make sure you’re not settling for one that doesn’t feel right to you.
Question 1 – What are the requirements to invest with your firm?
Most money management firms have a minimum asset requirement to get started. Don’t waste your time talking with an advisor that you don’t qualify with.
Question 2 – How are you paid?
It’s important to establish this early on. Advisors are typically paid in one of four ways:
– A percentage of assets managed
– A flat hourly fee (usually only if you’re just using them to create a financial plan)
– Commissions on securities
– Commissions on insurance products
This is usually the single most important question you can ask a potential advisor, and it reveals a lot about how they conduct their business.
Advisors who charge a percentage of assets managed or flat fees are typically the most trustworthy. Remember, their payment depends on their ability to manage and grow your accounts. If your accounts are suffering, their payment also goes down, so there’s an extra incentive for them to manage your accounts well.
On the other hand, hiring an advisor who accepts commissions can potentially create a conflict of interest down the line. They’re essentially functioning as “salesmen” for whoever provides the insurances or services they try to convince you to buy.
That’s not to say that all commission-based advisors are untrustworthy, but the nature of commission-based payment is always something you should keep in mind.
Question 3 – What licenses, credentials, or other certifications do you have?
There’s a couple of things to watch out for here. While it might seem like you want an advisor with as many certifications and licenses as possible, this can indicate that they’re not specialized in one area and have obtained multiple licenses in order to sell more products.
The answer you’re looking for here is also heavily dependent on your situation. If you’re looking for someone to help manage multiple aspects of your finances and design a plan for your future, you probably want an advisor with a Certified Financial Planner (CFP) designation.
If instead, you just want qualified investment advice, you’re looking more toward advisors with the Registered Investment Advisor (RIA) designation. Again, this is a highly personal issue, so make sure to look into the different types of advisors beforehand to figure out which fits you best.
Question 4 – What types of services does your firm provide?
This is an easy way to figure out if the advisor and their firm fits your needs. You know what you’re looking for, make sure it’s something the advisor in question specifies that they actually do.
Question 5 – Will I be working only with you, or with a team? Who is actually managing my money?
This will help you determine if the advisor you’re talking to is actually an expert, or if they’re more of a middleman who hands your money over to someone else in the firm. This isn’t necessarily a bad thing, but it’s worth noting if you’re actually talking to a real money manager, or just someone down the ladder.
If you’re looking for a lot of one-on-one advice, try to stick to advisors who you can work with personally. It can be frustrating trying to sift through a team of people when you want to talk to the advisor who you contacted in the first place.
Question 6 – What makes your client experience unique?
Every advisor should have an answer to this question, and it will help give you insight into what they consider important. You’re not necessarily looking for a specific answer here, but it will help differentiate between advisors and narrow down which one is best for you.
Question 7 – How much contact do you have with your clients?
Again, the “correct” answer to this question has to do with what you want personally.
Do you want your advisor to contact you on a regular basis so you know exactly what’s going on, or would you rather your accounts run on “autopilot”? There’s no right or wrong way to do things here, many advisors are perfectly capable of handling your accounts on their own. Simply ask yourself how closely you want to be involved in the process and look for the corresponding answer.
Finally…Did the advisor ask me questions? Did they seem interested in me?
This last question is actually one you should ask yourself after the interview has concluded. If the advisor didn’t really seem to care about you or ask you any questions, you may want to move on.
A good advisor will need to ask questions of their client in order to determine if the client is right for their firm, and also establish an idea of how to handle their accounts. A good advisor knows that every investor is unique and will need to establish how they want their accounts handled early on.
Again, these questions are simply a general guideline, and you’ll probably want to come up with a few further questions that fit your specific needs. However, the questions above should apply to any advisor you interview and will give you a very good idea of how they operate.
If you have any further questions, don’t hesitate to schedule a call with a member of the Rowe Wealth Management team. We can help guide you through the process of finding the best advisor for your needs and address any specific concerns you may have.
We also have qualified RIAs available to interview if you’d like to try these questions out in the real world. They may even be a perfect fit for your investment needs!
Click here to see available call times.
As always, invest wisely.
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