Do you ever face decision fatigue and overwhelm when you are trying to choose a doctor, a company to do business with, or a financial advisor? With so many choices, how do you know which one will be the right fit for your situation or personality? Or let’s face it, how do you know if you’ll even like the person?
The financial advisor you choose to handle your family’s wealth will have a significant impact on your investment strategy, the fees you pay, and your confidence in your financial future. This is not a decision to take lightly, especially since each advisor has a different level of service, expertise, and ability. As such, you should take your time to find an advisor that you feel at ease with and that makes you feel comfortable. Here are ten questions to ask potential candidates to narrow down the search:
1. How Much Experience Do You Have?
Experience is essential when you’re working with a professional of any kind, especially someone handling your finances. But let’s be more specific, what you should really ask about is their financial planning experience.
The average age of a financial advisor is about 51 years old, so many might look the part, but not all actually have as much relevant experience as you might assume. It’s common for advisors to have previous careers as insurance agents, brokers, or other non-finance positions, so it’s important to find out how many years they have spent solely doing financial planning and managing investments before you proceed further.
2. Do You Hold Any Credentials?
We take credentials seriously, and we think you should too. Credentials and education play a critical role in your advisor’s competence. There are hundreds of designations in the financial services field and some are more applicable to your needs than others. (1) Keep in mind that there are also many designations out there that are “alphabet soup” and can be literally just bought and slapped onto a business card with no real training required, so make sure that the credential your advisor has is legitimate. I would also be wary of an advisor who doesn’t have any credentials, as that tells me that they haven’t taken any steps to further their knowledge past the bare minimum requirements. Use DesignationCheck.com to learn more about the credentials financial advisors can earn.
I hold the CERTIFIED FINANCIAL PLANNER™ designation and the Accredited Asset Management Specialist (AAMS®) designation. For more than 30 years, the CERTIFIED FINANCIAL PLANNER™ certification has been called the "standard of excellence" for the financial planning profession. CFP® professionals have met extensive training and experience requirements, and commit to the CFP® Board's strict ethical standards that require them to put their clients' interests first.
3. What Financial Planning Services Do You Offer?
Not all financial advisors can provide comprehensive financial planning. Some cannot sell insurance or securities, such as mutual funds or stocks, if they don’t have the appropriate licenses. Some “advisors” can also be merely annuity salesmen or brokers and don’t have any real planning experience. Ask a financial advisor what specific services they provide and if they have a specialty.
I specialize in comprehensive financial planning for pre-retirees (10 years out from retirement or less), and those currently retired, and work closely with PA State employees (PSERS/SERS) and Geisinger/Evan/UPMC employees. My comprehensive planning process includes retirement income and tax planning, investment and risk management, and health care and legacy planning. I also enjoy helping Dave Ramsey followers get out of debt and create a financial plan through my affiliation as a Smartvestor Pro. The goal is to take care of the important things for you, so you can relax and spend more time on the things you enjoy.
4. What is Your Planning and Investment Philosophy?
It’s critical to work with an advisor who shares similar planning and investing philosophies as you for one, and secondly, that the philosophy is backed by some hard evidence and data. If you’re nearing retirement, you may not want to work with an advisor with an aggressive trading philosophy, whereas if you’re new to investing, you may not want to be too conservative. Talk with an advisor about how he or she guides clients’ investing and financial decisions. There shouldn’t be one size fits all investment recommendations, and they should be able to clearly articulate their investment philosophy. Don’t settle for a canned or cliché answer like “I believe in a long-term perspective”, ask for more specifics.
It’s also important to ask WHO influenced their investment philosophy. I was asked this question recently by a prospective client and I thought it was a fantastic question, I never had anyone ask me that before and it made me think. Ask them where did their investment outlook come from, and who or what had the biggest impact? This answer you should really pay attention to. Have them name some people (at least one of them should be someone well known in academic finance that you could look up on Google). If they can’t name anyone specific or give a generic answer like “my dad” or “the training I’ve had over the years” then it’s a clear sign you are dealing with an investment salesperson who has minimal knowledge of finance. This is a good time to remind them about that cake you have in the oven and get out of there.
I follow an “evidence-based” philosophy, meaning I make investment decisions based on academic facts and data, not industry advertising, short-term trends, or personal opinions. My biggest influences were the work of Nobel Prize winner Eugene Fama and the writing of Charles Ellis, both of whom were responsible for changing the industry from a short-term trading focus to a more cost-effective and efficient long-term one.
5. Who Do You Serve?
Some financial advisors specialize in serving a specific demographic or level of investable assets, so you’ll want to find this out before choosing. For example, if you’re a corporate executive with restricted stock options or a tech employee in Silicon Valley, you may be better suited to work with an advisor with experience in helping that niche demographic. My particular focus is providing financial planning and wealth management services to retirees and young professionals.
6. What is Your Process?
Every firm approaches financial planning differently, which is why it’s important to work with an advisor who uses a system that resonates with you and gives you confidence. There should be no sales agenda and no products pitched when you go in for a first meeting. I prefer to use a no-pressure style and want to get to know a little bit about someone before I even do any business.
I invite everyone for a free visit to come and see if we are a good fit, then if we decide to move forward we move into gathering relevant data, analyzing your situation, and preparing recommendations. I work with you (as well as your CPA and attorney, if applicable) to tweak the plan to your liking and implement the details. Finally, we review our actions and decisions, monitor progress, and maintain a regular channel of communication as time goes on.
7. How Do You Get Paid?
An advisor can get paid a few different ways, either as commission-based or "fee-based" advisors. If you work with an advisor who only charges a commission for selling financial service products, then you’ll usually pay a commission upfront as a portion of the money you invest.
Fee-based advisors can charge an hourly fee, a flat fee, or a retainer fee. The fee you pay is based on their financial advice or ongoing management of your investments. Fee-based financial advisors who provide advice or ongoing management are typically self-employed Registered Investment Advisors (RIA) or employees of this type of firm. A benefit of hiring fee-only advisors is that they have no financial stake in the recommendations that they give you, and they recommend only what they believe is in your best interest. Fee-based advisors can charge a combination of fees and commissions.
Each cost structure has its pros and cons, so be sure you are weighing all your options before making a decision. As an independent advisor, I prefer to use a "fee-based" structure, as I feel this helps provide clients with objective advice and allows me to focus on the financial planning aspect instead of just investment transactions.
8. How Much Do You Charge?
I understand that financial planning and investment costs can be confusing, so I try and simplify it to be as transparent as possible.
As a fee-based advisor, I charge an annual fee that ranges from 0.50%-1.35% on investment assets that I manage, billed quarterly (fee can vary depending on asset size and/or financial plan complexity). I also give the option of doing flat-fee financial planning for those who may not have investable assets, have assets held in employer plans, or who prefer to manage their investments elsewhere. Comprehensive financial planning fees can range from $3,500-$8,500 depending on the complexity and time involved.
I prefer to use the above structure, as I feel this helps provide clients with objective advice, gives them different options, and allows me to focus on their entire financial planning picture instead of just investments. This way my clients are paying me for advice and guidance and not just to sell a product.
And the only fees I receive are from my clients; I don't receive any kickbacks or referral fees for recommending investments or one strategy over another. I want my clients to know exactly what they are paying and why, and I want them to feel comfortable with the plan and confident that they are getting value for the cost.
9. Are You a Fiduciary?
An advisor who serves as a fiduciary accepts a responsibility to put the client’s interests first and foremost in all decisions, as well as a duty to treat your assets and financial situation as if it were their own. A fiduciary is supposed to disclose potential conflicts of interest and remain objective in their recommendations and advice. As a CFP® professional, I have made a commitment to abide by a strict code of professional conduct and a fiduciary standard.
10. Have You Ever Violated Any Standards or Laws?
It’s a good idea to check an advisor’s history and run a background check with regulatory agencies. Some advisors may have been subjected to disciplinary action if they violated any laws or if a client took action against them. You can look up an advisor’s background by visiting FINRA’s BrokerCheck. This database will also show you the years of experience an advisor has and the licenses and credentials earned. I highly recommend using this tool to look up your advisor. Most have clean records, but there are some out there with a few odd blemishes that will make you think twice about doing business.
To summarize, take your time and trust your intuition when selecting your advisor. The relationship should feel right and you should never feel pressured to make a decision quickly. An advisor should be happy to answer these questions above and any others you may have about how they operate.
I believe in complete transparency and want my clients to feel comfortable working with me and asking questions. If you’d like to learn more about my answers to these questions or any others, don’t hesitate to reach out to me. Send me an email at firstname.lastname@example.org or call my office at (570) 524-0120 to learn more about how I work and how I can help you with your finances.
Justin Buttrick is a financial planner and the founder of Vision Wealth Advisors, an independent financial services firm. He is a CERTIFIED FINANCIAL PLANNER™ and holds a B.A. in Economics from Temple University, and earned an M.S. in Financial Planning from one of the top CFP® Board Registered Programs in the country at Golden Gate University in San Francisco. In addition, Justin holds the Accredited Asset Management Specialist℠ (AAMS®) designation from the College for Financial Planning. He is also a proud veteran of the United States Coast Guard, having served aboard the USCGC MOHAWK in Key West, Florida from 2001-2005.