How to Interview Your (Potential) Financial Adviser

As individuals need help with their finances and investments they will likely turn to the help of a qualified professional. Their future financial adviser may come via referral from a trusted friend or family member, or through an extensive Internet search. The following is a list of questions (and answers to look for) that individuals can ask their potential adviser to see if he or she is likely to be a good fit and more importantly, act in the client’s best interest.

  1. Are you a fiduciary?

If yes, move to question 2. If no, thank them for their time and move to the next adviser on your list.

Advisers that are fiduciaries are legally bound to put their clients’ best interests first. In other words, regardless of compensation, products offered or company affiliation, fiduciary advisers must act in the best interest of their clients. Everything else is secondary.

  1. How do you get paid?

This answer may vary but will generally be answered that he gets paid via commission (by selling a product), fee (hourly rate or a percent of money managed), or a combination of both. If they say salary, ask how the firm gets paid. Generally, fee-only advisers will have less conflicts of interest, however it doesn’t mean there aren’t any.

  1. Are there any conflicts of interest I need to be aware of?

Depending on the answer to question 2 will determine what, if any conflicts are prevalent. Conflicts are necessarily bad, but they should be disclosed. Potential conflicts are that the adviser can only get paid if they sell you something (it may bias their advice), or if they refer you to another professional they get a kick-back. Additionally, conflicts arise if an adviser can only sell their company’s products. Also, see how they limit and reduce potential conflicts.

  1. How much experience do you have?

Every adviser needs to start somewhere and it doesn’t mean that an adviser with one year experience is worse than one with 20 years. It depends on the experience. If they have limited experience, ask if they work with other experienced advisors. What did their experience consist of?

  1. Will I be working with you or a team?

This may tie into question 4 or may be how the firm operates. For example, the firm may have an investment team, tax team, estate team, etc. It’s important to know whom you’ll be working with and your level of comfort with that individual. Some individuals prefer teams, while others prefer only one individual. Along these lines, you may ask how much turnover the firm experiences. High turnover means it’s likely you’ll have a new adviser every 6 months to a year.

  1. Do you follow your own advice?

This is a fair question to ask and will often tell you whether or not you’re working with a professional or salesperson. Granted, not all advice is going to be followed by the person giving it (i.e. I’m not planning on taking Social Security for quite some time, but I can give advice on filing strategies). But if the advice is a specific stock, annuity, life insurance, or mutual fund, ask if they own it or if they would be comfortable having a family member own it. Their reply (and their facial expression) will tell you a lot.

  1. What type of advising/planning do you do?

Some advisers call themselves advisers or planners but they really only sell one or two products or are strictly asset gatherers. By asking this question you can determine if all they care about is applying their fee to your investments or if they’re truly interested in helping you plan financially and comprehensively. If all you’re looking for is investment management, then a firm that only does investment management may be a good fit. If you’re looking for more comprehensive advice, then you may want to find a firm that does both.

  1. What are your fees?

Not only is it important to know how the adviser gets paid, but it’s just as important to know what you’re paying them. For a fee-only adviser you can ask how much they charge per hour or what percent they charge for managing your money. If they work on commission, ask what percent commission they receive on the product(s) they sell. In addition, it’s important to ask what the fees (expense ratios) are for investing in their recommended mutual funds, annuities, ETFs, and other vehicles. Higher fees generally mean lower returns.

  1. What products do you generally recommend?

This can tell you a lot on what their philosophies lay on compensation, products, and your best interests. Generally, the answer should lead to the lowest costs products for the best coverage. For life insurance this generally means term (although there are a few times permanent makes sense) and for investing it generally means low-cost passively managed mutual funds and/or ETFs such as index funds.

  1. What designations do you hold?

Generally, the first designation to look for regarding competence in financial planning is the CFP® designation. Considered the gold standard for financial planners, holders must have met an experience requirement, an exam requirement (6 hours, 175 questions), an education requirement (college-level courses in financial planning), and an ethics requirement. Additionally, CFP® professionals must complete continuing education to remain certified. Other designations may indicate specializations in an area of planning, but the CFP® requires their holders to be fiduciaries in financial planning engagements.

The post How to Interview Your (Potential) Financial Adviser appeared first on Getting Your Financial Ducks In A Row.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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