Written by When you’re in the market for professional financial advice, adding the right advisor can be difficult. You only have so much time with each financial planner, so it is important you maximize your time together. Your goal is to make an informed decision that makes sense to you. Below you will find eight questions that will help ensure you choose the right financial planner for your unique financial situation.
1. Are you a fiduciary?
The fiduciary standard means the advisor by law (Investment Advisers Act of 1940) must put your well-being above their own. As a fiduciary, if I were to make an investment at 11am in a stock that made me more money than when I make the investment for you at 1pm, I would be required to change my position with yours. On the contrary, if you are working with a broker or financial services representative (or whatever name they tell you) who is only bound by suitability (Financial Industry Regulatory Authority (FINRA), that means they need to only make a decision that is generally considered reasonable for someone with your financial goal. This may not seem like a big difference, but when it comes to your money, you want a financial plan unique to your specific desires.
2. How do you get paid?
You need to know if you are paying your adviser based on their financial advice, assets under management (AUM), or if they are being paid a commission to broker the relationship. If they are being paid a commission, that means they are paid based on the product or trade they sell you. The way they are paid tells you whether they have any conflicts of interest you should be aware of. It is important to note that the existence of a conflict of interest doesn’t automatically mean your financial planner is ripping you off. It does let you know your advisor is incentivized to make a decision that may not be in your best interest. There are pros and cons to each fee model, so it is important for you to prepare accordingly.
3. What is your education, training, skills and experience?
When answering the question of whether financial advice is worth it, I mentioned it depends. One of the things it depends on is the experience of your financial planner. Do they have an education in the field or did they transition from a different area? How long have they been in the financial industry and do they have any case studies to share with you on the results their financial advice can achieve? You will also want to know if they have any certifications or specialties that make them better suited to be your adviser. By flushing out their experience and background, you should have a good gauge on whether it makes sense to start a professional relationship with them.
4. What types of clients do you specialize in?
There are usually some commonalities between a financial planner and his or her clients. An adviser in their early 20’s tend to understand the issues someone in their early 20’s is experiencing. They understand the desire to save for a house, get out of debt and start retirement savings. Entrepreneurs tend to understand the gravity of running a business and the need to find customers and reinvest in the business early; while also knowing you need to put something away for the future. For you to be confident in the financial advice you are receiving, you need to believe your advisor gets you.
My clients believe you are to leave the world a better place than you found it. They tend to believe life is about experiences and sharing it with those you love. They believe money is tied to your values and how you spend it speaks about the kind of person you are. My clients share a problem-solving nature, so they tend to be optimistic entrepreneurs. They are protectors who enjoy serving their community and have a passion for helping others accomplish their goals. Lastly, they recognize what they have in this world is theirs for but a time. As a result, they want to leave an enduring legacy that ensures freedom for generations to come.
5. What is your investment philosophy?
Investment philosophies usually divide into passive and active. Passive investments focus on low-cost funds that usually match returns with the overall market. Active investments are actively managed funds where someone is trading stocks on a regular basis trying to beat the market. If you are looking for someone who is going to make investment decisions consistent with your appetite for risk and your goals, then I’m your planner. If you are looking for a high-frequency trader who is trying to make you a ton of money, then we’re probably not going to be the best fit. Understanding 80% of active funds do not beat the market over a 15-year period, most people can accomplish their goals, with less risk and lower fees. For the rare occasion active funds make sense, it isn’t because we are trying to make a ton of money, it is part of a comprehensive strategy.
6. What services do you provide your clients?
There are a variety of services a financial planner can offer. They may offer retirement planning, legacy and estate planning, tax planning, debt elimination strategies, life insurance, college planning, investment management, business planning and more. The goal should be to find a planner who can help you create a plan that will get you the results you want.
7. How often will we meet?
This is a two-part question in many ways. First and foremost, you need to know if you are meeting once a year, once a quarter or once a month. Second, you want to know who you are meeting with. Are you meeting with the financial planner in each of these meetings? Could you be meeting with a junior advisor, relationship manager or does the advisory firm operate in a team structure? Obsidian Wisdom operates on a fee-only complexity pricing model. What this means is your services are calculated based on the number of hours that need to be dedicated to you each year. This means you could meet with me once a year, once a month or any frequency in between. We operate similar to a doctor’s office where we have a team of specialists who assist me in the daily operation. You can meet with any of us, all of us or state your preference. The team structure works best because if anyone is not in the office on a particular day, your plan is still receiving the same quality of attention and service.
8. How do you measure success for your clients?
This question is important for the financial advisor and the client alike. It is important to set the proper expectation of how success is measured. As a financial planner, my goal is to create plans that help you achieve your short, medium and long-term goals. We assign a dollar value to the goal you want to achieve, and then we create a plan that provides you the financial freedom you need to live a life of your choosing. Other clients and advisers could base success solely on investment return. We have found collecting money for money’s sake does not ensure client satisfaction. Most people believe if they had more money, they could live a different life. Whether that is taking more trips with your family, supporting a cause you believe, starting a business or working when, where and if you want. That is why we ultimately measure success by the type of life you are living.
Final thoughts
After getting the answers to these eight questions, you need to ask yourself a few. Do you like him? Do you trust her? Do you feel confident in his ability do what he said he is going to do, when he said he is going to do it? Can you see yourself building a long-term partnership with her? If you are comfortable with your answers to these questions, then you are ready to commit and start the process of becoming a client.
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