Questions You Should Ask When Hiring a Financial Advisor

When looking for a financial advisor you need to think in terms of hiring a CFO for your team.  You are the employer.  You are in charge.  A financial advisor should guide in making savvy financial decisions but not rule your checkbook.

How do you find the financial advisor that will be a good fit for you?

Just like in hiring an employee, you interview them.  You ask them questions.  You check their employment history.  The website FINRA.org will have information on financial advisors that are securities licensed.

The following are questions you can use in interviewing a financial advisor.

Describe your ideal client.

This will give you an idea if you fit their profile.  If the response is people over age 50 who are focused on retirement and you are a young couple with small children, you may not have a comfortable fit.  But if you are transitioning into retirement, you want someone experienced in needs of retirees.

How long have you been a financial advisor?

You want someone who has been through a few down cycles in the market.  You also want someone with credentials like a Certified Financial Planner (CFP) or a Chartered Financial Consultant (ChFC).  A CPA may help you with taxes and estate planning, but unless they are a Personal Financial Specialist (CPA-PFS) they won’t have specific information on financial advising topics like investments.

What services do you offer?

Services can range from a full financial planning package covering insurance needs, retirement planning, college funding, investment portfolio and estate planning.  Or an advisor may focus on one or two areas. 

How are you compensated?

Employees aren’t hired without a discussion of salary.  This is an important question for you to ask.  Financial advisors can be compensated several different ways.

• Commission – a set percentage paid on products sold.
• Fees paid on a flat rate or hourly rate.
• Fess paid as a percentage of assets.

Some financial advisors use a mix of these forms of payment.  Some are fee only or percentage of assets only.  You need to understand the form of compensation up front.

Who handles the processing of their investments?

With all the scandal in the news about ponzi schemes, you want to know if assets will be housed with an independent third party custodian.

Third party custodians like Pershing, Charles Schwab, Fidelity or mutual fund companies provide periodic statements independent of the advisor.  This allows you to confirm your asset position.

Do you act in a fiduciary capacity towards your clients?

In laymen terms, you are asking if the financial advisor is obligated to put your interests first.  The brokerage industry uses the suitability standard which doesn’t fully address the fiduciary role an advisor can play.  A Certified Financial Planner (CFP) or Registered Investment Advisor (RIA) are required to operate in a fiduciary capacity as a part of their code of ethics.

You may be able to do some screening of financial advisors by phone.  Select a few you want to interview.  Meet with them and see how easy it is do business with them.  Do you understand the answers to your questions or are you left with more questions?

Picking a financial advisor is important.  You need to do your homework.  It will pay off.

Securities and advisory services through KMS Financial Services, Inc.