Questions to Ask When Choosing a Financial Advisor

Good Questions to Ask a Financial Advisor

Here are a few ways to measure credibility, transparency, and trustworthiness. None of these should be considered in isolation.

1. Can you get a referral or review from an existing client? Just like you probably don’t buy many products online without reading the reviews first, you don’t want to skip this step when choosing a financial advisor. Simply ask the advisor if they can provide some references who you can speak with.
2. What is their client retention rate? One thing to remember is that the retention rate in financial services, in general, is quite high. I would personally recommend you consider looking for something north of 96%.
3. What are their costs, and are they transparent? Are the costs of working with them down on paper, easy to understand, and part of the reporting process, or are they trying to sneak in additional fees and unexpected costs? Make sure you understand the total compensation paid to the advisor, as well as any additional fees you will pay. Examples of additional expenses include the investment vehicle expenses, as well as any trading expenses you may incur for buying or selling. Be wary of advisory fees that exceed 1% of the assets the advisor manages, and these should be much lower on balances over $1 million. Also, you don’t need to pay more than .20-.30% for investment vehicle expenses for high-quality mutual funds. It’s not to say that all investment solutions will have this low of fees, but you should understand when and why to pay more.
4. Do they have the Certified Financial Planner^® (CFP®) or equivalent designation? There are all kinds of designations financial advisors can get. You need to know that MANY of them require little more than a 3-day course. However, the CFP® designation is distinguished among the industry. Earning the designation requires 18-24 months of coursework, the completion of a comprehensive final exam and three years of experience. The coursework, prep classes and designation carry significant expense to the advisors as well, proving a dedication to investing in their career as well. And, the CFP® requires several hours of continuing education every year.
5. Do they demonstrate a desire to know you – your history, your values, your hopes, and your goals? If you’re going to be working closely and sharing personal details about your financial goals with an advisor, you’ll want them to take a genuine interest in these important areas of your life.

Is the Advisor a Fiduciary?

This question is probably the most important to determine trustworthiness. By law, a fiduciary is required to do what’s in your best interest at all times. A fiduciary must put you first. You would think that all financial advisors would be required to be a fiduciary. They aren’t. Some work under a suitability standard rather than a fiduciary standard. Advisors working under the suitability standard only need to have a reasonable belief that an investment, transaction, or the frequency of transactions is suitable, not best, for clients.

Advisors who are fiduciaries have an immediate advantage in the trust department over advisors who are only required to meet the suitability standard.

A Final Word on Choosing a Trustworthy Advisor

Listen to your gut and your intuition. If you like and enjoy them, they “feel” trustworthy, and they seem to genuinely like and care about you, it’s probably going to be a good fit. Subjective, personal things like this shouldn’t be overlooked when finding a financial advisor you can trust.

When Should You Hire a Financial Advisor?

Only you can decide when you’re ready to choose a financial advisor because the work an advisor does should be something you want assistance with. Instead of worrying if you should have an advisor because you earn a certain amount, base the decision on whether or not you believe you’ll benefit from the service.

In other words, hire a financial advisor when you want to pay for the service they provide.

Here’s the thing — I’ve spoken with several people who think they SHOULD pay an advisor. Perhaps a friend, family member, or co-worker suggested it. Perhaps you’ve been told it is what people at a certain stage of life or with a particular net worth should do. Maybe you just think it’s the responsible thing to do.

But, before you say yes to working with an advisor, you need to be sure you WANT to pay for the services a financial advisor provides. What I mean in using the word WANT is that you see the value in working with an advisor and are willing, perhaps glad, to invest in the relationship. I’ve seen people hire us solely on the basis of SHOULD, only to realize within the first couple years they don’t actually WANT to pay for the service. This is bad for everyone.

Our best clients are happy to pay us. I don’t know any other way to say it. They are thankful for a companion who worries about their money with them and brings ideas and experience to every financial conversation.

Choose a Financial Advisor You Can Trust at Foster Group

In making a decision to choose a trustworthy advisor, give yourself the time you need to answer these important questions with clarity. If you’re considering choosing a financial advisor, a Foster Group team member, we’d love to talk to you.