It’s Friday and it’s time for our word of the week. The word this week is choosing a financial advisor.
I choose the topic of choosing a financial advisor in response to a question from a listener. Brad wanted to know if in light of all of deregulation in the financial industry if the way you choose an advisor should be changed? My answer – Yes and No.
First, the process remains the same – you decide what you want an advisor to do for you – for example do you want to just ask them some questions or do you want them to do everything for you? Then you want to ask friends and family for referrals. And you can also visit websites like the CFP website (certified financial planners), NAPFA – the national association of personal financial advisors which are fee only planners and the FPA or the financial planning association.
Next, once you have a list, narrow it down to maybe three and do some additional research – check them out on the FINRA database to see if they are in good standing or if complaints have been filed.
Finally, interview those that make the cut and ask them a series of questions to see if they are a good fit for you. Be sure to ask them all the same questions so you can compare apples to apples. Now for the Yes part of my answer and it’s one additional question that you need to ask and that is if they are a fiduciary. As you know in the era of deregulation, financial advisors do not have to put their clients best interests first even though you pay them, but someone who is a fiduciary has to. Not being a fiduciary is not necessarily a deal breaker, but it means asking more questions like what are your policies and you need to see their written policies. I posting some basic questions in the blog post of this episode – Episode 840 and you can see it a www.mym360.com
Our word of the week – choosing a financial advisor. This is not a decision that you should take lightly.
Got a suggestion for a word of the week that you would like? If so, send it to me at firstname.lastname@example.org.
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Thanks so much for listening and as always remember that minding your money really is the path to a richer life!
Resources: Sample Questions
- How do you get paid? Advisors are paid in one of three ways: fees, commissions, or a combination of these. There are good and bad advisors in each pay category. The important is thing to understand how they get paid and the total cost to you.
- What is your background? Ask questions about training, education, licenses, and credentials. You are looking for someone you feel has the understanding to help you with the areas you need help with. For example, if retirement is a concern, look for an advisors that specialize in retirement planning.
- Do you have clients like me? Ask if the advisor has worked directly with people who have your specific need, in your age category, etc. If so, ask for references and then check them.
- What can I expect to pay for your services? Find out the typical costs associated with the types of services you need. Note: Before you sign with an advisor, get something in writing that spells out the fees.
- How do you communicate with clients and how often can I expect to hear from you or your office? If you are going to be an ongoing client, find out how often progress statements are sent out, how often reviews are conducted, and any additional fees associated with them.
- How do you choose investments for clients? A good answer here is that they choose investments based on your goals, risk tolerance level, and the time frame when you will need the money. Be suspicious of advisors who don’t use any of these criteria or who have a one-size fits all philosophy.
Review your notes from the interviews and add your thoughts regarding his/her competence, interest in taking you on as a client, and whether he or she is a person you trust and can work with. Then do your homework, including calling references.