Choosing your financial advisor is not a decision to take lightly. Whoever you choose will be an influential consultant as you pursue your financial goals. You might say choosing your financial advisor is your most important investment strategy.
In a perfect world, you could throw a dart at a printout of search engine results and hire the first financial advisor that it hits. Unfortunately, in reality, that could put you in the hands of a salesperson disguised as a financial advisor or investment manager without the tools to help you thrive.
So, what follows are some excellent questions to ask any wealth management firm that you are considering.
Wealth Management Goals: Initial Screening
Your relationship with your wealth manager or financial advisor should be an important one given the impact your financial decisions can have over time. As you ask the following questions, you are looking for how well the answers align with you and your philosophy.
You also want to feel comfortable speaking with them. You want to know you will have the access and support you need. In the end, your hiring decision should be formed around an objective interview process rather than a subjective one.
1) What is Your Investing Philosophy?
This question does not require references to Aristotle (though we would consider extra credit for mentioning Milton Friedman). However, they should be able to express their investment philosophy so people without extensive financial expertise can clearly understand.
The essential aspects of an advisor’s investing philosophy include how that advisor approaches risk and volatility, how they adapt portfolios toward retirement, their approach to diversification, and whether they include alternative investments in their plan.
2) How Do You Work With Clients?
This should help reveal what information they use to construct an investment portfolio. Do not hesitate to request specifics. You may also want to ask, “Is it based only on risk tolerance and age, or do you take a more customized approach?”
You cannot afford to leave this to chance. It is always better to find out if someone’s working style will be compatible with yours beforehand.
3) What Are the Best Ways To Reach You?
You want someone who is accessible. We might all want to imagine that we are a favorite doctor’s only patient, but in the real world, financial advisors have multiple clients.
What’s important here is that you can access the advisor through your preferred channels. If you need to get someone on the phone, but they only respond to emails in between consultations, this would be a mismatch that could lead to frustration.
4) How Long Have You Been a Financial Advisor, and Do You Have a Clean Compliance Record?
Being newer to the industry doesn’t necessarily make an advisor a bad choice. Education, certifications, experience in the financial markets prior to becoming an advisor, and resources at their disposal also come into play.
You should also explore their compliance history to understand if they have any disclosures that might be pertinent. You should ask the advisor directly, and you can also conduct your own search on FINRA’s Broker Check online service.
5) What Are Your Certifications?
Just because someone presents themselves as a wealth planner or financial advisor does not mean that they have the knowledge, expertise, or integrity to handle your assets or savings competently.
Sadly, there are too many headlines about people who handed over their portfolio based solely on a handshake and smile. An hour’s worth of homework could have spared them the heartache.
Some well-known titles within the financial industry for both advisors and accountants include the following (in alphabetical order):
Accredited Investment Fiduciary® (AIF®)
Chartered Alternative Investment Analyst (CAIA®)
Chartered Financial Analyst (CFA)
CERTIFIED FINANCIAL PLANNER™ (CFP®)
Chartered Financial Consultant (ChFC)
Chartered Investment Counselor (CIC)
Certified Management Accountant (CMA)
Certified Public Accountant (CPA)
Financial Risk Manager (FRM)
Retirement Income Certified Professional (RICP)
This article goes into detail on the meaning of each title. The CERTIFIED FINANCIAL PLANNER™ is one of the most common and respected among financial professionals. If the advisor you interview doesn’t have any certifications but has years of experience and a strong track record, they may still be an excellent choice.
6) What Are Your Fees?
Advisors should fully disclose their fees to you, as well as other fees associated with your investments. They should communicate how they are compensated:
“fee-only,” “fee-based,” or “commission.”
Fee-only: In this model, you pay the advisor for their financial advice and direction. It is typically a percentage of assets they manage for you or a flat fee.
Fee-based: Typically, this compensation model is driven by a percentage of assets they are managing for you. However, they can also provide financial products such as insurance products (e.g., annuities).
Commission: The advisor receives a commission directly from the company for placing your money. Examples would be direct stock trades, mutual funds, annuities, etc. Advisors compensated with a commission are not responsible for providing ongoing services.
7) Are You a Fiduciary?
We believe this is the key question on the list. A fiduciary, by definition, is legally obligated to put a client’s best financial interests ahead of their own. This obligation has two facets, the duty of care and the duty of loyalty.
Before any plan or recommendation is made, comprehensive data about your finances must be reviewed (the duty of care).
The duty of loyalty means there can be no personal or economic conflicts of interest. Similarly, investment managers cannot exploit their position to pursue their private interests.
As a result, fiduciary advisors who receive commissions for specific recommendations are obligated to disclose that before you purchase. That way, you are fully informed about the transaction.
Not all financial advisors and wealth managers are equal. A few strategic questions will uncover essential details about their training, how they work, how they get paid, and their experience.
At ViaWealth, our advisors are committed to your success. If you are looking for a fiduciary financial advisor in Chicago, contact us.