10 Questions to Ask When Considering a Financial Advisor

So you’ve decided to hire a financial advisor to help you define and meet your financial goals. Now what? How do you find the right advisor, and how do you make sure you’re entrusting your finances to someone competent and ethical?

As with any major life decision, get all the facts first. Meet with several different financial advisors, and ask questions to see who’s the best fit. There should be no charge for this getting-to-know-you appointment — and if there is, that’s a clear indication to move on! Use the following questions as a starting point, and tailor them to your own unique situation.

1. What is your background? Just as you wouldn’t hire someone to watch your kids without checking into their background, don’t hire a financial advisor unless you know about his or her past. Has the advisor ever been subject to disciplinary action? Listen to what he or she has to say, but do your homework, too. You can go to the Financial Industry Regulatory Authority (FINRA) BrokerCheck, a handy free tool that will give you background information on any current or former FINRA-registered brokerage firm or broker. The U.S. Securities and Exchange Commission (SEC) Investment Adviser Search is also free and provides a wealth of information as well.
2. How much experience do you have? You want to know your financial advisor’s training, experience and area of specialization fit your specific needs. How long has the advisor been practicing? What is the scope of his or her practice? Get as detailed as you need to in order to know whether the financial advisor’s experience meets your requirements.
3. What is your investment/financial planning philosophy? If the answer to this question doesn’t match your own philosophy, if it’s too risky or not risky enough, or if it just plain doesn’t make sense to you, keep looking.
4. What are your credentials? Check out the various credentials and designations available to financial planners, and know going in which ones you’d prefer your financial planner to have. Read our FAQ topic “What Professional Certifications are Available for RIAs?” to get a thorough understanding of this topic.
5. How do you get paid? We’ve covered the significance of fee-only advisors in our blog post, “Should You Choose a Fee-Only or Fee-Based Financial Advisor?” Ideally, that’s your financial planner’s fee structure as well. But even if you’re comfortable with your financial advisor working on a commission basis, find out all the facts. Is he or she affiliated in any way (especially in terms of compensation) with any of the products, services or companies he or she recommends to clients? Does the advisor receive any gifts or incentives from third parties? These things don’t necessarily mean the advisor will recommend products or services you don’t need, but they can indicate a conflict of interest — the advisor’s vs. yours.
6. Are you a fiduciary? A fiduciary has sworn an oath to act in his or her clients’ best interests. When it comes to your money, you definitely want someone who must look after your best interests at all times!
7. Who is your typical client? You don’t want names here, you want a profile. If you’re a single, professional woman in her early thirties with the goal of paying off debt and buying a house in the next five years, an advisor whose clients are all wealthy Baby Boomers may not be the best fit for you.
8. What exactly will you do for me? Have the financial advisor explain precisely what he or she envisions to help you meet your financial goals. Then get it in writing, along with a clear explanation of his or her fee structure. If an advisor isn’t willing to put it in writing, there’s a reason — and that’s a good enough reason for you to move on to the next candidate.
9. Do you have references? Ask to speak to some of the advisor’s clients whose situations, finances and/or goals are similar to yours. See what they have to say, then ask them if they know other clients of the advisor. The goal is to talk to clients the advisor hasn’t spoon-fed you and find out how they feel about the service the financial advisor provides.
10. How do you keep me updated on my investments? If you want a financial planner who is accessible via e-mail and phone, make that clear. If you want your financial advisor to check in with you monthly or quarterly to talk about your portfolio and your plans, speak up about that, too. Find an advisor who provides the level of communication you need to feel comfortable.

Again, these questions aren’t the be-all and end-all of choosing a financial advisor, but taken as a whole, they should give you a picture of the person you’re talking to. There are no guarantees, but if you do your due diligence in vetting anyone who might end up working with your hard-earned money, you’ll likely sleep better at night.

If you’re retired with little or no savings, mounting debts, and no financial advisor, you’re not alone.

According to the CESI Debt Solutions survey of over 200 retirees, the results of which were released yesterday, almost 40% of retired Americans have added to their credit-card debt since retiring. What’s more, they aren’t worried about paying it back before they die.

But even more sobering is the survey’s finding that over 50% of respondents have saved less than $50,000 (with many reporting that they have nothing in savings). Remember, these are retired folks!

CESI Executive Vice President Neil Ellington stated to CNBC that retirees who are accumulating debt likely feel like it’s too late to do anything about it, so they decide not to even try to get their credit cards paid off. He also observed that many retirees feel like they’ve earned some of the finer things in life, even if they have to put those things (travel, for instance) on credit cards. And finally, he explained that retirees who are in debt don’t know what to do about it, and they’re ashamed to ask for help.

All Financial Advisors thinks there’s a simple solution for those who are retired and in debt: Talk to a financial advisor. Comprehensive financial advisors are trained to help people reduce debt and build savings. And judging by the results of the CESI survey, that’s exactly what retirees need to do.

If you’re in this boat — retired, in debt, nothing saved and no financial advisor — there’s no need to be ashamed. Fee-only financial advisors know it’s not easy to bare your financial soul, but that’s what they’re there for. Only when your financial advisor knows everything about your financial life, including your debt, savings, insurance, estate plan, assets and more, can he or she come up with a plan you can use to actually pay off your debt, build your savings, and live out your golden years free of financial worry.

Has growing debt and dwindling savings made your retirement difficult? You can take the first steps toward changing your situation right now. Search for trustworthy financial advisors in your area. Interview two or three (if you’re not sure what questions to ask, check out our FAQs). See if one of the financial advisors you interview feels right to you, and hire that one. You can live out the rest of your life without the burden of financial stress. Let the financial advisors here at All Financial Advisors help.

Last week, we talked about how financial advisors can help people just starting out in their professional lives. Today, we’ll talk about a much different life stage: Divorce.

No one wants to think about life taking unexpected turns. Sadly, however, changes like divorce are common — and invariably bring financial upheaval. At a time of such intense emotional distress, dealing with the loss of the financial security you’ve always counted on may seem like an impossible task.

When your life has been turned upside-down by divorce, a financial advisor experienced in helping clients adjust their financial plans after divorce can be a source of comfort and encouragement. Here are a few ways financial advisors can make the turmoil of divorce a little easier to bear:

• Help you understand the financial aspect of all the legal documents. If you know what the divorce papers are saying about finances, you can make better informed decisions.

• Clarify your financial situation. A financial advisor skilled in working with divorce matters will be able to help you sort through your finances, separate what may have been a lifetime of his-and-hers financial matters into just his or just hers, and get a clear picture you and your attorney can refer to, if needed, to reach a fair and equitable settlement.

• Help you focus on your finances. It’s easy to get bogged down in the emotions you’re feeling, but during a divorce, you’ll need to keep your mind at least partially on financial matters as well. Financial advisors can help you do just that.

• Get you back on track. Your budget after divorce will be very different from the budget you followed while married. A financial advisor experienced in divorce will help you create a budget for your new life.

Nothing will take away the pain of divorce, but financial advisors can help relieve some of the associated pressures. If your life has suddenly become unstable due to divorce, now is the time to take action.

Search for financial advisors near you. Interview two or three of them, and see which one you’re comfortable with (ideally, it’s a financial advisor who can focus on helping you rebuild your financial life). Then get started on your new financial plan.

It’s not easy, but with the help of a good financial advisor, you can be financially comfortable — with a solid plan for reaching your goals — once again.  

Financial Life Stages: Just Starting Out

We’ve discussed how financial advisors can help anyone, regardless of income. Now let’s take a look at why you should consider hiring a financial advisor even if you’re just starting out in your financial life.

Maybe you just graduated from college; maybe you’re in your first real job in your chosen career field; maybe you’re newly married. In any case, you’re beginning your financial life - and maybe you’ve never thought about a financial advisor. But could you use the help of a professional financial counselor?

Absolutely. Whether you’re learning to live independently for the first time, considering participating in your employer’s retirement plan or jointly trying to manage two incomes, a financial advisor can help you avoid pitfalls and handle your finances the right way from the very beginning.

Financial advisors don’t just give investment advice or manage the portfolios of the very wealthy. They can also help you establish a budget, determine how to maximize your employee benefits, help you define your financial goals (and recommend savings and investing plans to meet those goals), and even give you expert guidance on setting up life insurance and other estate planning basics.

If you’re young and considering hiring a financial advisor, you have a golden opportunity to get your finances in order right from the get-go. In fact, by taking the time now to evaluate financial advisors and focus on your financial future, you’re setting yourself up for financial security later in life. As we noted in our post on the ING Retirement Research Institute survey, a combined 79% of Americans with financial advisors give themselves grades of “A” and “B” when asked how prepared they are for retirement. Those aren’t insignificant numbers, and they indicate that working with a financial professional can help you feel confident about the future.

Right now is the perfect time to get started, no matter where you are in life. Search the independent All Financial Advisors directory now to find financial advisors in your area. Choose two or three to talk with before you make your decision: Get a feel for whether you could use their services and see which one might be a good fit for you. We applaud you for taking control of your finances early in life!

Fiduciary: A Fancy Word For Trustworthy

Webster’s defines fiduciary as “of, relating to, or involving a confidence or trust: as held or founded in trust or confidence; holding in trust.” The word trust appears three times in that twenty-word definition, telling us it all boils down to . . . well, trust.

Fiduciary is a crucial word to remember when you’re evaluating financial advisors.  A fiduciary is bound by law to act in your best interests at all times, even when your best interests are in conflict with the fiduciary’s financial interests.

So what does that have to do with financial advisors?  Plenty.  Never assume a financial advisor is a fiduciary.  In fact, unless your financial advisor is an attorney, a certified public accountant (CPA) or a registered investment advisor (RIA), chances are, he or she is not a fiduciary.  Only lawyers, CPAs and RIAs are automatically fiduciaries.

And why is that important? Imagine a financial advisor who gets a commission for convincing you to invest in certain funds, insurance policies or other financial products. Do you think that advisor will recommend what’s best for you 100% of the time, or will you sometimes be steered in the direction of those financial products that result in a tidy fee for the advisor?

A fiduciary, on the other hand, must disclose in writing any actual and potential conflicts of interest. Fiduciaries cannot receive any compensation from any third party that is contingent upon your purchase of any financial product. They are prohibited from being compensated for referring you to any other professional. They must thoroughly disclose exactly how they are compensated. And they must adhere to a professional Code of Ethics.

You can certainly choose to work with a financial advisor who has not taken the fiduciary oath. But if you want to be sure you can trust the person giving you financial advice, choose a fiduciary. 

Financial Advisors: Interview Questions

These basic questions are a good starting point to understanding any of the financial advisors you may interview or meet.  Let us know if this list was helpful.  Thanks!

PERSONAL

How long have you been in the financial services industry and/or a financial advisor specifically?

Briefly describe your work history.

What is your educational background?

What licenses and/or designations do you currently hold?

Have you ever had any formal client complaints filed against you? If so, please explain.

SERVICES

What services do you and/or your firm offer?

Do you specialize in a particular area?

Please explain your approach to investing and/or financial planning.

Who will provide ongoing service to my account?

If you are unavailable do you have back-up support team?

How often do you perform account reviews?

How many clients do you currently have?

Do you provide ongoing education for your clients?

Will you provide me with your form ADV Part II or the state equivalent?  If no, please explain.

Are you and/or your firm registered at the state and federal levels as an investment advisor?  If not, please explain.

COMPENSATION

How do you charge for your services?

Do you have a business affiliation with any company whose products or services you are recommending?  If yes, please explain.

Do you receive compensation for referring me to other business professionals? If yes, please explain.

In the event of an emergency, how long will it take to get all of my money out of the investment account we have discussed? Please explain in writing.

Do you provide clients with a written letter of engagement? If no, please explain.

What’s the difference between Fee-Only and Fee-based Financial Advisors?

There are many things to consider when deciding to hire a financial advisor.  Perhaps the most important consideration, however, is how a financial advisor gets paid.

AllFinancialAdvisors.com recommends finding out how an advisor, wealth manager or financial planner is to be compensated; via a “Fee-Only” arrangement, or as a fee-based financial advisor or as a commission-based broker.

There is a subtle but important difference between “Fee-Only” and fee-based: A fee-based financial advisor can receive compensation from you and from third parties (mutual fund companies, insurance companies, investment firms or brokerages).

Any time a financial advisor is being paid by someone other than you to give you investment advice; you can’t be sure whether he/she is acting in your best interests or just selling you the products that will best fill his/her own piggy bank.

A Fee-Only financial advisor, on the other hand, cannot accept fees from anyone but you.  Those fees can take the form of an hourly rate, a percentage of the assets managed on your behalf, a flat fee, or a monthly retainer. What’s more, Fee-Only registered investment advisors (RIAs) must uphold a fiduciary responsibility to you. That means they are bound to recommend only those investments that are right for you (and which are less expensive to own).

The bottom line is this: Fee-Only financial advisors have your best interests in mind at all times.  Their loyalty lies with you, not with a company whose products may be completely wrong for your financial goals.  And being able to trust your financial advisor will give you the peace of mind that comes with knowing your money is well taken care of.

You can find many high-quality Fee-Only financial advisors right here at AllFinancialAdvisors.com.

Many experts recommend interviewing 2-3 different financial advisors, so that you can compare and contrast each individual and firm’s background — in order to make the best qualified decision for you and your family.

Fiduciary Duty (defined by Wikipedia):  A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary ().

Financial Advisors: Not Just for the Wealthy

If you’ve held off from hiring a financial advisor because you just don’t have any money for someone to help you manage, it might be time to change your perspective. In fact, a Fee-only financial advisor or RIA can help you set your financial goals, create a plan for actually achieving those goals in your lifetime, and implementing that plan.

The fact is, you’ll need to save the same amount of money to put a child through college as you would if you were bringing home a few hundred thousand a year. It might be easier to save if your monthly income was five figures, but it can still be done even if right now you’re struggling to get by.

And that’s exactly where a financial advisor can help get you on track. Whether you have children who will someday go to college or not, you DO have financial goals (even if you’ve never sat down to think about them). Retirement is a financial goal. So is a vacation, a new car, an emergency savings account or a job change. And they all require planning. If it seems like your income will never be high enough to afford any of those things, we could argue you need a financial advisor every bit as much as a wealthy person does–because a financial advisor can actually help you save, and grow your savings, to meet goals you might otherwise only dream of.

Let’s face it: If you knew a lot about saving, investing and managing money, you’d already be doing it. But many Americans aren’t, and, like them, you might have no idea where to start. A good Fee-only financial advisor will sit down with you, analyze where you are right now and where you want to go, and develop a solid plan to get you there (provided you follow the plan). He or she will follow up with you periodically to see where you are, talk about what’s changed in your financial status or goals, and adjust the plan if needed.

Those are services you can use whether you’re already wealthy or not. And your chances of becoming wealthy–or at least more comfortably well-off than you are right now–will be greater if you have a financial professional in your corner.

 * * * Many of our advisors are members of the Financial Planning Association (FPA) and also the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning). Using the services of a qualified financial advisor (to help you identify the strengths and weaknesses in your financial picture) will ensure you can retire comfortably! NOTE: Experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.

Here on the AllFinancialAdvisors.com blog, we’ve talked about various aspects of choosing a financial planner. But we haven’t yet talked about exactly what it is a financial advisor actually does.

First, let’s be clear:  All of the financial advisors listed with AllFinancialAdvisors.com are registered investment advisors, or RIAs.  That means they’re registered with, and regulated by, the U.S. Securities and Exchange Commission (SEC) (or with their state, if they’re managing less than $25 million).  As RIAs, these financial advisors are required to uphold fiduciary duty, meaning they’re legally required to look out for your best interests. (For more about fiduciary duty)

So just what does a financial advisor or RIA do? That depends on the RIA and his or her practice and expertise, but in general, you can expect a financial advisor to do the following:

• Look at the big picture.  A financial advisor will sit down with you and get a clear idea of exactly where you are financially today and where you want to be in the future.          
• Make a plan.  Once your financial advisor has a clear understanding of your current financial situation and your goals, he or she will create a plan to take you from where you are to where you want to go. If you’re just starting out, this may include everything from budget advice to estate planning. If you’re in the process of accumulating wealth, your plan will probably focus more on growth strategies.           
• Prioritize.  Maybe you have 20 years until retirement, and in the meantime you want to send your kids through college, pay off your house, take a vacation each year and build savings. Those are all significant goals, and a financial advisor will help you to work toward achieving all of them by recommending investments with the appropriate amount of risk and allocating your money accordingly.     
• Navigate potential roadblocks.  You might not think about taxes and estate planning, but your financial advisor does.  He or she will maximize your pre-tax investments, minimize your tax risk, and work to ensure your estate passes intact to your heirs.     
• Stay ahead of the curve.  Once your financial plan is established and agreed upon and working smoothly, you can expect your financial advisor to check in with you each year or as needed to fine–tune your financial plan.  This is your chance to check in, discuss your portfolio and talk about any new financial goals.

If you really want to know what a financial advisor does, the best course of action is to find out up front.  Interview several financial advisors and get a clear understanding of exactly what they’ll do for you (and get it in writing).  When you know what to expect from the get-go, your relationship with your financial advisor will run smoothly–and neither of you will be in for any unpleasant surprises later on.

According to a study released today by the Certified Financial Planner Board of Standards Inc., Americans are more concerned about their money now than they were when things started going south–but we’re less likely to hire a financial advisor to help us do something about it.

First, the good news. The study, which questioned 1,002 people over 18 earlier this month, showed we are optimistic about economic recovery: A full 66% of respondents believe the U.S. economy will hold steady or show improvement in the next six months. Even more–83%–think their own finances will do the same.

At the same time, 65% of survey respondents are more worried about their finances now than they were two years ago. We can do some armchair quarterbacking and conclude that’s likely because so many Americans have weathered some really tough circumstances during the economic crisis, including job losses, extended unemployment, depleted savings, foreclosures and bankruptcy. Of course they’re concerned. The study also found most people feel the government needs to do more to deal with the far-reaching effects of the economic meltdown.

Most Americans describe their current outlook on their finances as “cautious,” and they say their biggest financial planning concerns right now are retirement, saving and education, not choosing stocks or cash management. Again, that’s consistent with the hypothesis that most people’s savings have taken hits during the last two years.

But here’s the really interesting part: More Americans than not, feel financial advisors are more important than they were two years ago, and those who do have financial planners are more confident about their finances than are those who don’t.

But only 28% of survey respondents actually have a financial planner. More than two-thirds of people, while acknowledging the need for a financial planner, haven’t followed through and gotten one!

So what’s holding you back? 
If you feel a financial advisor is important but don’t yet have one, what is the biggest reason?  Is it a trust issue?  Not sure how to go about finding the right advisor?  Uncertain how a financial advisor can help you if you’re not already wealthy? Something else entirely?  Time to ACT NOW!

We’d love to hear your responses!