Hiring your first financial planner or selecting a new one can be a trying experience. How do you know if you are making the right choice? Will this person act in your best interest? While no selection process is flawless, here are ten questions you should ask before hiring a financial planner/advisor.
- Will my assets be held at an independent third-party custodian? Will I receive account statements directly from them? If the advisor will be providing ongoing investment advice and the answer is anything other than yes, you should end the meeting right then and there. This was one of the key elements of the Madoff fraud and this should be a big red flag to investors for potential fraud.
- Do you have experience working with clients whose situation and advice needs are similar to ours? If you are a couple approaching retirement and the planner works mostly with 30 something attorneys she may not be a good fit with your needs.
- How do you communicate with your clients? How often? There is no right answer here, but you should expect to hear from your advisor periodically during the year. You should certainly hear from him during periods of market upheaval. It’s not that you would do anything differently because of short-term market gyrations, but a good advisor will want to understand how his clients are coping.
- How are you compensated? Do you receive any compensation based on financial products that you might recommend to me? I am a fee-only advisor and thus extremely biased that this is the only route a client should ever go. At the very least you should understand all forms of compensation your advisor will receive and from whom. For example does the fact that your advisor receives commissions taint the advice they provide you? You want to always be confident your advisor is working for your best interests and not in the interest of lining their pockets at your expense.
- Do you act as a Fiduciary towards your clients? A fiduciary is bound to act in the best interests of their client. In the brokerage world there is something called the suitability standard, which is much less rigorous in its insistence the advisor work in your best interests. Within the financial services industry there is much debate as to whether all advisors will be required to act as a fiduciary.
Roger Wohlner, CFP® is a fee-only financial advisor at Asset Strategy Consultants. Roger provides advice to individual clients, retirement plan sponsors and participants, foundations, and endowments. Follow Roger on Twitter; connect with him on LinkedIn.