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When interviewing a financial advisor, what questions should I ask?

Jan 05, 2012 by Shaloha in  |  Flag
16 Answers  |  19 Followers
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12 votes
  1. Are you a registered investment advisor (RIA, paid by fees) or a registered representative (stockbroker, paid by commissions)?
  2. How do you charge for your services?
  3. Are you a fiduciary (do you have a legal responsibility to put my needs and interests before your own or those of your firm)?
  4. How long have you been in business?
  5. Have there ever been any complaints lodged against you?
  6. If you are an RIA, can I have a recent copy of your ADV?
  7. What are your assets under management (AUM)?
  8. What is your average account size?
  9. Do you have a minimum account size?
  10. How many clients do you have?
  11. How do you manage money? Do you outsource that function or keep it in house?
  12. What firm has custody of the funds? In other words, who will be sending me my trade confirmations and monthly statements?
  13. If you manage the money yourself, how do you do it? Stocks, bonds, mutual funds, ETFs or some combination?
  14. Who will actually be responsible for the management of my investments? Will I be able to communicate directly with that individual?
  15. What investment style do you (or your firm) employ (asset allocation, model portfolio, individual stock picking, top-down, etc)? Do you employ an active or passive management style?
  16. Can you tell me about your track record? Are your numbers audited or AIMR compliant?
  17. Why do you think I would benefit from hiring you to manage my investments?
2 Comments   |  Flag   |  Jan 06, 2012 from Port Chester, NY
Ryan

Greg, would these questions change if the focus on the relationship was more on financial planning and less on investments?

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Flag |  Jan 06, 2012 near San Diego, CA
Evan M. Levine, ChFC

I'm not sure it's in the publics best interest to bifurcate "Financial Planning" and "investment management" any longer. I have seen " Financial plans " that cost $5,000 - $20,000 dollars, overloaded with meaningless data and assumptions.. where action is not taken- nor does the clients behavior change in terms of thier invesments decisions, savings patterns etc. Where is the value added there? Why does a financial advisor even exist? But I digress.

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Flag |  Mar 28, 2012 near Port Washington, NY

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10 votes

The first question you’ll want to ask is where he or she sees themselves on the spectrum between planner and asset manager. Look for someone who positions his or her expertise as being somewhere in the middle. The hardcore asset manager types will not be focused on performance and uninterested in your personal situation while the planning-only types will be clueless about what’s happening in the markets from day to day, almost by design.

1 Comment   |  Flag   |  Mar 13, 2012 from Manhattan, NY
Jason W. Self, CFA, CFP®

You wouldn't want someone necessarily in the middle. You might need more of a planner or you might need more of an asset manager.

Flag |  Jun 25, 2015 near Austin, TX

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8 votes

1) Please describe your overall advising and investment philosophy. 2) Will you act as a fiduciary at all times as defined by federal law? 3) Will you disclose all compensation clearly - in writing? 4) Will you be receiving third party compensation contingent upon selling me a financial product? 5) Will you disclose all potential conflicts of interests?

1 Comment   |  Flag   |  Jan 05, 2012 from Port Washington, NY
Shaloha

Thank you! This is very helpful.

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Flag |  Jan 05, 2012

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5 votes
Peter C. Karp Level 20

Shaloha,

When it comes to our money, we can’t control the markets but we can control who and how they manage our money — as they say, past performance is not an indicator of future results. For that reason, you’ll want to search and vet all candidates carefully. Here’s how to find an advisor who is a good fit for your money needs.

Start by asking friends and family for referrals and, in particular, get recommendations from people whose financial needs, outlook or stage of life is similar to yours. Before contacting planners, look them up online and on LinkedIn to get a sense of what each firm is like. Something as simple as the photos on their homepages can indicate which ones are targeting your demographic. Also, search for a planner directly on the sites of the Financial Planning Association and the National Association of Personal Financial Advisors. The advisors on the latter organization’s site are fee-only, meaning they will not earn commissions for selling you specific investments but simply charge you a rate, usually based on the assets you put under management. Many experts say that a fee-only advisor is preferable, to eliminate conflicts of interest and ensure he or she always acts with your best interest at heart. Once you’ve gotten a list of potential advisors, take one more step before setting up appointments to meet: Find out whether each has ever been disciplined for any unlawful or unethical behavior. You can do this using the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck. You can also look the advisors up on the CFP Board’s site, to verify that they each have CFP certification status.

When you have your initial interview, here are the questions you want to ask: 1. How do you charge for your services, and how much? 2. What licenses, credentials or other certifications do you have? 3. What services do you/does your firm provide? 4. What types of clients do you specialize in? 5. Could I see a sample financial plan? 6. What is your investment approach? 7. How much contact do you have with your clients? 8. Will I be working only with you or with a team? 9. What makes your client experience unique? 10. Finally, there’s one last question you want to ask of yourself after meeting with a potential planner: Did he or she ask me questions and seem to be interested in me?

Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Financial Telesis Inc., member SIPC/FINRA. Financial Telesis Inc. and Karp Capital Management are not affiliated companies.

Comment   |  Flag   |  Aug 05, 2013 from San Francisco, CA

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4 votes

Let me start by saying that I find a lot of confusion and misconception associated with the term "financial adviser." In fact, despite my best efforts to correct them, some of my closest friends and even a few family members still mischaracterize what I do.

Generally, a financial adviser provides one or more of the following services:

  1. Investment management. This typically involves designing investment portfolios and managing the holdings, often on a discretionary basis (meaning that the adviser can buy and sell holdings at his/her discretion without obtaining your permission prior to each trade).

  2. Financial planning. This involves an assessment of your current financial situation and how it may evolve over time. It attempts to determine how you will be positioned to handle major financial issues in the future, such as the purchase of a home, college funding, retirement income and lifestyle, insurance needs, and size of inheritance (if any) that you wish to leave to heirs upon your death.

  3. Wealth management. Often utilized by families having a high net worth, this typically involves the handling of more complex issues requiring coordination with other professionals such as accountants and attorneys. This can include establishment and management of trusts, tax minimization, transfer of business ownership, real estate management, and wealth transfer across generations.

You should first determine for your own situation the extent that you need each of these services. Your logical starting point with a potential adviser, therefore, would be to ask how much of their activities are devoted to each of these services to see if their offerings are aligned with your needs.

I have also written a Financial Guide (Prospective Client Q&A with Alan Johnson) available on my BrightScope page that provides additional insight and more detailed questions, along with my responses from the standpoint of my firm and its focus on investment management.

Hopefully the answers I provide in the guide can help you to compare and contrast the responses you get from the advisers you are actually considering.

Comment   |  Flag   |  Sep 29, 2013 from Morristown, NJ

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3 votes

Yes the questions would change as my response was predicated on the relationship being more focused on investments.

Comment   |  Flag   |  Jan 06, 2012 from Port Chester, NY

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3 votes
Andy Tilp, CFP® Level 16

The others have provided good questions. However, I would suggest the first question you should ask is where their fiduciary responsibly lies. That is, do they put your interests above all others, including their own, or is somewhere else?

Their answer should always be they put your fiduciary responsibility first. Then the next question to ask is them to sign a fiduciary oath that puts your interest first. If they cannot, or will not, then I would question why not and probably look elsewhere.

You can find such a advisor at NAPFA and Garrett Planning Network. Advisors associated with these organizations are required to serve the client first and always do what is in the client's best interest. (Full disclosure – I am a member of both organizations.)

Comment   |  Flag   |  Oct 26, 2013 from Sherwood, OR

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3 votes

Yes, yes, all of those. One more thought: think about what you want and where you are in your stage in life. Being able to articulate a little more about what you need should help you weed through or have advisor self select themselves out. For example, are you trying to get a path to go the right direction but feel like you can manage the investments? If so, you need a financial plan, not an asset manager. Do you have too many accounts going in different directions and need someone to corral everything? Then you need a plan and an asset manager. Are you getting ready to retire? If so, ask questions about how much experience the advisor has with withdrawal strategies rather than accumulating wealth.

Ask about how they treat clients similar to you or what they've found folks like you needed. Ask what their process is and how they provide service -- do they expect you to provide information throughout the year? Will you hear from them quarterly, annually, etc. to review? Last, ask what other resources or people might be pulled into the conversation if they can't answer all the questions (and how those folks might be compensated) and how those people were chosen. This might help you get a feel for what it's like to work with this person, which is just as important as the information given above.

Comment   |  Flag   |  Oct 29, 2013 from Alexandria, VA

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3 votes

Here is what I would add to the exhaustive list of questions to ask by Gregory:

1) What Conflicts of Interest do you have? 2) Is your Firm Independent and Owned by Employees? 3) Do you have a Succession Plan? 4) How did you react during the 2008 Financial Crisis? 5) Do you recommend the use of Alternative Investments?

Comment   |  Flag   |  Oct 29, 2013 from Appleton, WI

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3 votes

Everyone has given excellent questions to ask any advisor you are considering working with. I would add one thing... Let every advisor ask you some questions as well. It will give you a feel for how they work (do they have a process?) and get you comfortable with them. It will also allow you to see if they have your best interest in mind without explicitly asking them that... because almost everyone will give you answers you want to hear anyway. The best advisors will really want to understand your goals, dreams, aspirations, concerns, etc. and will tell you if they think they can help you out. I've personally walked away from a few situations because I didn't think I was the best fit for that individual and I ask prospective clients to do that same if they feel that way about me.

Comment   |  Flag   |  Feb 25, 2014 from Appleton, WI

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