9 Critical Questions You Should Ask Before Hiring a Financial Advisor
In the financial services industry, many confusing terms and jargon make it hard to know who you are hiring and what service they will provide. In our recent blog post, we covered why we recommend paying a fee whenever you work with a financial advisor. But what is a financial advisor, planner, or wealth manager, and how do you know you are hiring the right one for your unique situation?
Terms like CFP, financial planner, financial advisor, wealth manager, and many more are thrown around, but what do they mean, and how do you know if you’re reaching the correct type of financial services professional for your needs? It can be challenging to determine that on paper alone, so we recommend doing your homework and coming prepared to your first meeting ready to interview your potential advisor.
Before you hire a financial professional, below are some questions we recommend you ask.
Do you work in a fiduciary capacity?
Historically, many financial service offerings were primarily offered in products, such as a stockbroker or insurance salesperson. As Mainsail Advisor and Founder Adam Laibson points out, the individuals that sold these products had to make sure that the product was suitable for you, but not go much further in asking questions about whether the product was right for you and your financial situation. It is critical to find out if the advisor you are interviewing is working in this capacity, or whether they receive kickbacks for products, and what those products are.
Put simply, to define fiduciary means that the individual is legally and ethically bound to always put their client's best interest ahead of their own. A true fiduciary will provide objective advice and recommendations that will always put the client first in financial planning. This will always require more conversations and more questions about the overall objectives, a complete financial picture, feelings, and values, not just if something is suitable. Some advisors are not always fiduciaries, however we at Mainsail Financial Group are always fiduciary advisors. For scenarios and more information, visit our blog post that breaks down the fiduciary standard.
How are you compensated?
Mainsail Advisor Harrison Baxter shares that it can be critical to ask straightforward questions when interviewing advisors. Understanding if and how an advisor may receive commissions is important to clarify in order to prevent conflicts of interest. Advisors who are fee-only, and therefore only compensated directly through the fees you pay for their advice, may have less conflicts than an advisor who receives commissions through an investment or insurance company.
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What are your credentials? Can you tell me more about what a CFP® is?
Since more and more people are labeling themselves as "financial planners" in some way, it has become harder for clients to know what that really means or what kind of service a planner can provide. The question of “what are your credentials?” can be very helpful to ask when interviewing a new advisor. As Mainsail Advisor and Founder Adam Laibson points out, someone offering insurance products might offer financial planning that leads to a product as a solution; another may provide only investment products that their financial planning converges on.
As for a CFP® or CERTIFIED FINANCIAL PLANNER™ professional specifically, advisors with these designations are available to help individuals manage their financial assets. The type of help they can provide includes investment planning, retirement planning, Social Security planning, education, and more.
To learn more about the history, code of ethics, and more, visit our blog post covering the CFP® designation.
What areas does your advice cover? (Examples include tax planning, estate planning, investments, etc.)
Some advisors may focus entirely on investment advice rather than addressing areas that impact your finances but fall outside the scope of the stocks and bonds you own. Others may take a broader approach and dig into the entire financial plan. Mainsail Advisor Samantha Kennedy points out that it is challenging for many folks to assess all variables that impact one’s future, so an advisor that can help you organize personal and professional priorities and potentially unexpected events ensures nothing is overlooked. Clarifying what level of service and advice they will offer you in the most critical areas and in challenging situations that could come up is key.
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What is your process?
A fundamental question to understand when working with a financial advisor is their process. Before engaging with any financial advisor, ask them to share their process with you, from investments to financial planning. This will provide a clear picture of the work that a particular advisor or team puts in to develop the strategies they bring to the table. You will also get a glimpse into the scope of the work they may be doing for you, whether that is just investment advice or if it goes beyond that, including areas such as tax or legacy planning.
Can you share an example of a client in my position that you helped? What was the impact on that family or individual?
Asking for an example from an advisor can give you an idea of the strategies that may be implemented as you work with an advisor. Although everyone’s situation is different, folks in a similar position often may run into the same general themes. This question can help an advisor demonstrate what would be looked at in your particular case and give you an idea of the value of the services you will receive.
Please visit our additional resources below for more information about working with a financial advisor and some points to consider. Additionally, if you would like to learn more about working with a member of our financial advisory team, please do not hesitate to schedule a call today.