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9 Questions to Ask When Shopping for An Advisor


Looking for a financial advisor is like looking for a new hire, you need to make sure you vet them properly and ask the right questions. Here are nine essential questions to consider.

Shopping for a financial advisor isn’t easy. The services they offer can be complicated and choosing can be confusing because various types of practitioners call themselves advisors.

Tax advisor plan questions

Typically, when you meet with advisors to check them out, they talk about their expertise and offer assurances that they’ll always serve your best interests. However, consumers don’t know how to evaluate these claims because they don’t know what questions to ask.

How are you compensated?

Here are some of the right questions you should be asking a potential advisor.At issue here is whether the advisor is working as a fiduciary—a legal term for a professional who always puts your interest above their own. Fiduciaries, who earns no sales commissions for portfolio construction, are different from non-fiduciary advisors, who operate under a different regulatory standard, known as the sales-practice standard. Generally, fiduciary advisors make a living from fees for advice, not product sales, which can cause conflicts of interest. If an advisor is a broker (essentially an investment salesperson), they’re not a fiduciary and shouldn’t be calling themselves an advisor.

What services do you provide?

What would be the total costs in working with you?

What credentials do you hold and how do these support your claims of expertise?

Could I see a typical sample portfolio and a financial plan?

How would you determine my asset allocation?

How much contact do you have with clients?

Will you be the only person I’d be working with?

Will you create an investment policy statement (IPS) for my account?

Many consumers mistakenly associate fiduciaries with large brokerages, but this is fundamentally wrong. Brokers aren’t subject to Securities and Exchange Commission rules regulating advisors as fiduciaries. Instead, they operate under the sales practice standards of the Financial Industry Regulatory Authority.Many advisors call themselves wealth managers, but precious few of them provide a full array of wealth management services. Along with investments, wealth managers advise clients on tax planning, cashflow analysis, executive compensation, estate planning and, potentially, many other areas. For instance, small-business (e.g., medical practices) planning, to college planning, to real estate transactions, and charitable giving strategies. Be wary of those who call themselves wealth managers but are ill-equipped to provide all the services you need to reach your investment goals. That is, how much do you charge for advice, what investments would you recommend and how much would they cost?Relevant credentials include applicable academic degrees, certifications and licenses. One certification to look for is a CFP®—certified financial planner, a widely respected credential that reflects extensive knowledge, expertise and experience in financial planning.Though client portfolios vary, an example portfolio can give you an idea of the advisor’s leanings regarding portfolio construction and management. And a typical financial plan can yield insights into how an advisor approaches retirement planning issues. One thing to look for is how much of the clients’ money is tied up in inaccessible accounts, where funds can’t be withdrawn without long waits or painful penalties. Say you’d like to see an anonymous plan and a portfolio for someone with a comparable income, risk tolerance and retirement horizon to your own.What criteria would you use? This is extremely important because it signals an advisor’s philosophy of risk versus returns.If I hire you, when will I see you again? What if I want to make an appointment to see you? What if I need to quickly get cash out of an accessible account? Will you give me your cell number? Some advisors hold quarterly meetings with all clients, but many don’t. After the initial planning sessions, some clients never see their advisors again, even for an on-screen meeting. Make sure that your advisor is avaible as much as you need them.If not, who else? Are you a one-person shop or do you have associates or partners? Would you be making decisions on recommendations for my account, or would they? Some advisors just make the sale and then farm out the work to less experienced people. Ensure that you’re comfortable with how they operate.This a blueprint for the management of your investments that includes a description of your risk tolerance and investment goals, and general guidelines governing how your investments should be managed. Using an IPS helps avoid doubts about whether investment management moves being considered would be acceptable. IPS documents are quite common in institutional financial management, yet many advisors of individual investors also use them. It’s a helpful tool for keeping your advisor on your preferred track.

If an advisor is reluctant to answer these questions, move on. In finding the right steward for your financial affairs, there’s no room for ambiguity.

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David Robinson, a Certified Financial Planner, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.

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