Ask the Right Questions
Not all financial advisors are the same. Asking the right questions can help you find the right advisor for your specific goals. However, you may not be aware of what questions to ask or even what a good answer would be. You may find this concise summary of questions helpful in your search.
The over-whelming answer should be “Yes”. A fiduciary has a legal obligation to work in your best interest. Not all advisors are required to take a fiduciary responsibility for their clients. Knowing whether your advisor has this level of responsibility for you is critical.
Who is the common thread – the hub - that ties all parties together on behalf of your family? Most often, it’s you. As your wealth grows, the amount of time required to be in this extremely important position grows, while the time you have available shrinks. A holistic financial planner should be able to fill in as that hub, proactively collaborating with your other financial professionals to identify opportunities, maximize efficiency, and reduce redundancy across investment management, tax planning, and estate planning.
Many advisors will specialize in certain areas. For instance, some advisors will only offer investment management services, or only planning services. Others will only offer insurance or protection products. Still others will claim they “do it all”, including tax and legal work, auto and home insurance, etc., when they only implement and execute internally on a few areas. Be sure to have clarity on which services your advisor will be providing, and which services they will not from the beginning of the relationship to ensure what gaps may exist.
Advisors can be compensated in many different ways and not all of those ways are transparent to clients. Some charge a flat fee for service; others charge a fee as a percentage of assets under management. Others receive commissions for products and securities placed. Others receive a combination of all of these depending on the circumstances. In any case, it is important to be clear on how your advisor is compensated to be able to correctly identify any potential conflicts of interest. Some advisors charge in advance while others charge upon satisfactory completion.
Investment philosophies include the values and beliefs that help guide your decision-making process while building your portfolio. Making sure your personal investment philosophy aligns with your advisor’s is key. Having a written, agreed-upon philosophy can help you and your advisor maintain discipline when challenges arise.
Financial freedom comes with flexibility, and it also comes with a greater number of decisions to make. You should know the thought process that went into an investment decision. Not just why an advisor is making a recommendation, but what were the other alternatives and why were they not recommended?
This applies to more than just managing an investment portfolio. Depending on your circumstances, other financial products may add tremendous value to you and your family. It is important to know the due diligence process that goes into making those types of decisions as well. Partnering with a holistic financial planning firm should align you with the level of expertise required to navigate the entire financial product landscape.
Every firm has some conflict of interest. Making sure that they are properly disclosed to you is key. A conflict of interest is not inherently a bad thing. The problem arises when you are not aware it exists and cannot make an educated decision knowing there is some level of conflict involved. An advisor should be transparent and forthcoming about any potential conflicts of interest from the beginning of the relationship. Advisors should also let you know when conflicts have changed.
The only constant in life is change, and your advisor should be there as your financial plan changes. Your needs should determine how often advisors meet with you. In addition, having a set review schedule can help keep you and your advisor aligned when life unexpectedly changes. Advisors should proactively reach out to you to ensure regular meetings occur. As you approach major life events, such as retirement, meeting frequency should increase to keep everyone on the same page.
Many of the strategies considered in financial planning are designed to last a lifetime, even multiple generations. That is the kind of timeline that can span the careers of multiple advisors. What plans have been put in place in the advisor’s firm to ensure the advice and planning will continue to be maintained and preserved beyond your current advisor? Client strategies should be well documented. Advisors should have a robust, written continuity plan where the knowledge, values, and discipline that made your plan successful remain intact.
Good leaders build and develop good leaders. Advisors should be willing to invest back into your success by ensuring the next generation of advisors is well equipped to meet your needs without interruption.
Things change, and as they change, sometimes the people you work with must also change. While saying goodbye may be difficult, you should always be supported when making a decision that is right for your family. You should have a smooth transition from one advisor to another. That includes having access to historical information and answering any questions you might have.