Hiring a financial advisor is a pretty big decision. This may be the first time that you are allowing someone else into such a private part of your life. You are looking for someone who is trustworthy, knowledgeable, experienced, empathetic, and someone who shares similar values with you — so how do you go about figuring out if this person you are meeting with is the right advisor for you? Well, the best way to get to know the advisor is by asking good deep questions.
In order to help you come prepared to that first meeting with an advisor, here are 12 questions you should ask every potential candidate before you hire them as your financial advisor.
1. Are you a fiduciary?
A fiduciary is someone who has to act in their clients best interest by law. If an advisor is not a fiduciary, then they just have to recommend products that are suitable for you — even if they are expensive and not the best option. (you can read more about this in my blog post about types of financial advisors)
2. What services do you provide for your clients?
Investment management is becoming commoditized. It does not make sense for most people to pay just to have their investments managed. Look for an advisor who is going to do holistic planning and one that will help you envision and achieve your dream life. Most people are looking for a guide to continually help them make good decisions and pivot when life changes. We all know it’s impossible to predict what will happen next in our lives, so we need someone who learns and adapts with us.
3. What do you charge and how do you get paid?
This is a big one. In the financial services industry, advisors can be paid in multiple ways. It can be confusing. Here are some ways advisors are paid:
- Through a monthly/yearly subscription fee
- Through the assets he/she manages for the client (typically charge .5%-2% depending on value)
- Through the products you buy from the advisor (an advisor can be paid commissions based on life insurance, annuities, etc.).
You want to know the way the advisor is paid so you can see if there are any conflicts of interest. No model takes away all conflicts, but fee-only advisors typically have the least conflicts.
4. How will the relationship work? How often do we meet?
Take some time and think through what you want the relationship to look like. If you are looking for someone who will check in every month and have multiple meetings a year, then find someone who provides that for their clients. The goal is to find the right advisor who services their clients in a way that will lead to the best outcomes for yourself and your family.
5. What is your investment policy/beliefs?
You want to make sure that the advisor’s investment policy aligns with yours. If you are someone that does not like risk, you may not want to work with an advisor who just does individual securities or cryptocurrencies. Also, if ESG investing is important to you, make sure the advisor you hire has portfolios that cater to your wishes.
6. Who do you do your best work for?
The world has changed. Very few advisors any more work with just anybody and everybody. Advisors are choosing to niche down so they can do deeper, more valuable work for a certain segment of people. Find an advisor who specializes in what you are going through. If you ask an advisor who they do their best work for, and they either don’t have an answer, or their answer is different from what their social media or website says, then take that as a red flag. Work with someone who gets you and has helped others just like you succeed.
7. How do you define/measure success for your clients?
Understanding how the advisor measures success is really important. Whether it’s based on goals hit, net worth growth, or any other metric, make sure that is aligned with how you see success in your financial life.
8. What is important to you/what do you value?
Your relationship with your financial advisor is often one of the longest and deepest relationships you will have with someone professionally. Take the hiring decision just like you would if you were expanding your business. Your financial advisor is your partner in so many decisions. Make sure their beliefs are aligned with yours. Additionally, make sure you like the advisor and enjoy talking to them and learning from them.
9. Do you have any investment minimum requirements?
If an advisor’s only way to charge their clients is through the assets they manage, they typically will have an investment minimum to make it worth their time. Be sure to ask them what the minimums are as well as what percent they charge based on different dollar amounts. You want someone who is affordable but yet delivers what you need.
10. Why did your last client hire you?
This may be one of the best questions you can ask. How the advisor answers can determine whether you would be a good fit for their firm.
Example: The last client hired us because their family was growing and they did not have time anymore to manage their financial lives. They wanted us to help them manage cash flow, plan for their kids educational expenses, and then to invest based on their goals and risk tolerance while also being tax efficient. Then ask the advisor how they delivered on the wants of that client. This allows you to see how they truly help others and whether that is how you want to be helped.
11. Will you coordinate your advice with my tax situation?
Taxes are a big conversation topic for many. No one likes having to give away money without a choice. Plus, tax laws are always changing and can be hard to keep up with so it makes complete sense that taxes are on many peoples’ minds. It is important to understand that the goal is not always to pay the least in taxes this year. The goal is to pay the least amount of taxes over your lifetime. You want an advisor who looks for tax opportunities such as tax-loss harvesting, ROTH conversions, etc. to minimize taxes over the longterm.
12. How will we stay in contact if we only meet a couple times a year?
Advisors have different strategies on how to continually communicate with their clients. Maybe it’s through multiple meetings a year. Maybe it’s through emails or social media. Maybe it’s through podcasts and loom videos. There are a ton of options out there. You can find an advisor who communicates with you in the way you prefer.
Remember, hiring a financial advisor is a big decision — one that can really pay off and advance you in your financial life. However, you do not want to rush the decision. Interview multiple people. Ask them these questions, and then listen. This is how you will end up finding the right person for your situation.
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.