There are plenty of investment advisors who are willing to take your money and invest it, but how do you know if they are making the best decisions for you? Rather than telling an advisor how to manage your money, ask them good questions before hiring them so you can completely trust them to manage your money.
Here are some questions you should ask an advisor to determine if they are a good fit for you:
1. Why Did You Become an Advisor?
Find out why your advisor wanted to become an advisor in the first place. What you are looking for is what motivates him or her get out of bed and come to work in the morning.
2. How Do You Make Investment Recommendations?
Find out what kind of research the advisor engages in and how much time per week they spend doing it. You want an advisor who is picking stocks after researching them, not on a whim or by what is trending.
3. What Is Your Educational Background and Experience?
There is no set educational or career path for financial advisors, but knowing they have some formal education and certifications and/or licenses can help you trust the decision they would be making with your money. (For related reading, see: The Alphabet Soup of Financial Certifications.)
4. Where Is Your Money Invested and Why?
If the advisor is willing to answer this question it can increase your confidence if the holdings are the same investments he or she is recommending for you. However, keep in mind your advisor may have different financial planning goals than you.
5. How Would This Investment Fit Into My Financial Plan?
Seek out an advisor who looks at your entire financial picture, not just what you have for them to invest. To make this question worthwhile, you’ll need to understand your own financial objectives, risk tolerance and future goals.
6. How Do You Get Paid, and Do You Have a Sales Quota?
Knowing how your advisor gets paid is extremely important because advisors earn money in different ways. Some are paid hourly, some earn fees based on investments, which may lead to conflicts of interest, and some are commission-based, meaning they earn a percentage of the profit on specific products they sell. You want to find someone who makes recommendations based on what is the best investment for you, not on what will compensate them most. (For related reading, see: How Your Financial Advisor Gets Paid.)
7. Are You Required to Do What's Best for Me, or Only What's Suitable?
Understand the difference between the fiduciary and suitability standard when choosing a financial advisor. The fiduciary standard requires an advisor to put clients’ interests first. This standard is adhered to by registered investment advisors (RIAs) and enforced by the Securities and Exchange Commission (SEC) or state securities regulators. The suitability standard requires a broker to make suitable recommendations based on a client’s situation. However, the standard does not require the advice to be in the client’s best interest.
Brokers, also known as registered representatives, are held to the suitability standard, which is enforced through a self-regulated organization called the Financial Industry Regulatory Authority (FINRA). In addition to the “clients’ interest first” difference, the fiduciary must disclose any potential conflict of interests that might arise as a result of advice (i.e. commissions on a product), whereas a broker does not have to disclose this conflict.
Find an Advisor Who Is Right for You
Some people are not always completely honest or trustworthy when it comes to managing our money, but fortunately, many advisors are. If you don’t fully understand your future financial goals, your advisor should ask you questions and work with you to craft a solid financial plan for your future. If you are satisfied your advisor understands your desires, you can be more confident in their investment decisions on your behalf and feel comfortable sticking to your plan.
(For related reading, see: Find a New Financial Advisor Who's Right for You.)
Important Disclosures: The information provided here is of a general nature and is not intended to answer any individual’s financial questions. Do not rely on information presented herein to address your individual financial concerns. Your receipt of information from this material does not create a client relationship and the financial privileges inherent therein. If you have a financial question, you should consult an experienced financial advisor. Moreover, the hiring of a financial advisor is an important decision that should not be based solely upon blogs, articles, or advertisements. Before you hire a financial advisor, you should request information about the financial advisor’s qualifications and experiences. Past performance is no guarantee of future results. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Examples provided are for illustrative (or “informational”) purposes only and not intended to be reflective of results you can expect to achieve. Judy Hulsey (“Judy”) works with Allgen Financial Advisors, Inc. (“Allgen”), which is an investment advisor registered with the SEC. Neither Judy nor Allgen provide personal financial advice via this material. The purpose of this material is limited to the dissemination of general information regarding the services offered by Judy and Allgen. It is not intended to be a solicitation or offer to sell investment advisory services to residents of any state in which Allgen is not currently authorized to do so. The Disclosure Brochure, Form ADV Part II, which details the business practices, services offered, and related fees of Allgen, is available upon request.
cr. https://www.investopedia.com/advisor-network/articles/are-you-getting-what-you-deserve-find-out-heres-five-questions-ask-your-financial-advisor/
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