When you’re searching for a financial advisor, it’s a two-way street. It is normal for an advisor to ask detailed questions about your personal financial situation in an initial meeting. The advisor is interviewing you to see if he or she can help you with your needs.
But what about the questions you ask the client should be asking? If you do not have a financial background, it’s hard to even know where to start. Budgets? Funds? The Snapchat IPO?
Here are a few questions you can ask to find an advisor who will truly serve your best interests—from your initial search to ongoing questions you should ask when you already have an advisor.
Ask These Questions Before Hiring an Advisor
1. Are you a fiduciary? The correct answer is “yes.” If there is any hesitation or hedging, walk away. A fiduciary is a professional who puts YOUR financial best interest before their own.
RED FLAG: If you see a disclosure like the one below on an advisor’s website or business card, look for a different advisor. This shows that the advisor is not truly independent, and that there is an additional layer of brokerage fees.
Certain individuals associated with Firm ABC, Inc. are registered with and offer securities and investment advisory services through XYZ Financial Services, Inc. (“XYZ”), a registered broker-dealer and investment adviser, member FINRA/SIPC.
2. What services can I expect as your client? The advisor should be able to walk you through the onboarding process and the ongoing service you can expect. This is also a good time to discuss how you would like to communicate with an advisor—over the phone, in person, video conference? No two people have the exact same financial needs. Does the advisor customize their offering to “an audience of one”—you?
3. How do you charge clients? The correct answer is “fee-only.” (Not “fee-based,” which means a fee plus a commission!)
A fee-only model is the most advantageous to the client because it puts the advisor and the client on the same side of the table. The financial incentive for the advisor is to make the client as much money as possible, and it eliminates conflicts of interest. If the client is the only one paying the advisor (ie. no commissions from fund providers, banks or insurers), the advisor can give truly objective advice without being biased to any one product, provider or trade.
It is also important to ask about the cost of the investments themselves: the expense ratio. Any cost savings adds to your portfolio performance, so an advisor working in your best interest should provide a very cost-effective investment solution.
4. Do you provide past performance data? This one is a trick question. Be wary of any advisor who provides past performance data. This is a sign that they are using one-size-fits-all portfolios that do not take into account your individual cash flow, income, expenses, risk tolerance, goals, assets, debts, etc. Clients of similar age and wealth will have unique financial situations; therefore, the portfolio will have to accomplish different objectives. Also, while the advisor may choose to show you a particular time range where they had very good returns, past performance is no guarantee of future results. If the advisor does provide returns, it should be a report from an outside third party to allow for checks and balances.
The caveat to this advice is that once you have an advisor, of course he or she should provide performance reports to clients based on their actual portfolios.
Questions to Ask Your Existing Advisor
5. What have you done for me lately? A little tongue-in-cheek, a little serious—if you are paying an ongoing fee to your advisor, you should be receiving value throughout the year. That may be in the form of cost savings, investment monitoring, portfolio rebalancing, financial planning services or meeting with your CPA or attorney. Your advisor should be able to clearly articulate what he or she does for you.
Halpern Financial has a sample “Client Service Calendar” with examples of the services we provide throughout the year for our clients.
6. How am I doing on my progress toward my goals? While your advisor can do a lot to optimize your portfolio and give proper advice, building wealth also takes some action from you. Perhaps that means saving a certain amount each month or meeting with tax or estate professionals. Your advisor should be able to give you a bird’s eye view of where you are today in comparison to your goals, and what steps are necessary to approach them.
7. Are you using accurate information? This question sounds a little accusatory, but financial projections are only as good as the assumptions used to create them. If your income or spending changes, or you plan major life events like moving or having a child, this could significantly impact the advice we give. We want to know all about these things that impact you both personally and financially!
8. What should I be focusing on in the next quarter/year/etc.? As an objective third party, we can help clients stay accountable to their goals, and be aware of potential opportunities and headwinds. Some of these may be personal to your own life, like curbing your spending, or there may be wider economic trends that might benefit or hurt your financial goals. For example, in the past decade we have been in a very low interest rate environment. If your goal was to buy a car, there was not a greater benefit to paying cash rather than financing. The investment potential of the cash was greater than the detriment of paying interest because the rate was low. Now, this low interest rate environment may be drawing to a close, and our advice has changed accordingly. At Halpern Financial we provide quarterly commentary with a look back and look forward on topics like these that impact our clients.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Halpern Financial, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Halpern Financial, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Halpern Financial, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Halpern Financial, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.