Basic questions of financial advisors

In essence, choosing the right financial advisor is spending time investing in a long-term professional relationship, so that your financial situation and the future are on the right track. Search should go far beyond recommendations from colleagues, friends, and family, and attention to investment performance.

In fact, investors should do their best to find medical professionals who trust their health. A suitable financial advisor will provide the professional assistance needed to achieve long-term and short-term financial goals.

Key points

  • Narrowing the range of suitable financial advisors can be a chore, but getting expert financial advice is usually a wise decision.
  • The following are questions to ask when choosing a qualified financial adviser. If they cannot or avoid answering them, please keep looking.
  • For consultants, being able to answer these questions may be the difference between a potential client’s decision to choose you rather than a competitor.

What is your professional qualification?

Anyone can distribute business cards to keep them as financial advisors, so it is important to ask for qualifications and certificates.

Although there are countless professional names, top consultants usually have certificates such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Chartered Financial Advisor (ChFC).

For example, consultants with the CFP designation are regulated, licensed, and take required courses related to financial planning, such as estate planning and retirement planning.

Some consultants are also certified public accountants (CPA). For those who still need tax advice and preparation, it may make sense to choose a financial planner who is also a certified public accountant.

Financial advisers who sell stocks, bonds, mutual funds, or insurance have licenses that include Series 6, Series 7, or Series 63. To obtain these licenses, they must take an exam administered by the Financial Industry Regulatory Authority.

Are you RIA?

Some financial advisors are registered investment advisors (RIA), which means that they comply with the high fiduciary standards established to protect investors. The fiduciary standard requires consultants to always put the best interests of the client in the first place unconditionally.

Consultants who are not trustees adhere to a less stringent standard called the suitability standard. This means that any investment they provide must be suitable for the client, although it may not be in their best interest.

As the name suggests, RIAs also need to be registered with the Securities and Exchange Commission or the state in which they do business.

How do you charge for your services?

Most RIAs charge customers a certain percentage of managed assets or fixed fees or hourly rates. Advisors who only charge fees will not earn commissions from the investment products they sell to clients. On average, they charge no more than 2% of the assets under management. This percentage usually decreases as you have more assets to manage.

Advisors working for full-service companies, such as large broker-dealers such as Merrill Lynch and Morgan Stanley, often charge commissions on investment products such as stocks, bonds, mutual funds, exchange-traded funds, and trading annuities. In theory, advisors who charge commissions may not be objective when recommending investments.

Who are your typical customers?

It is important to understand which types of clients the financial adviser you are evaluating usually caters to to ensure that they have the experience and expertise that match your situation. For example, millennials who are just starting to save for retirement may not be best served by consultants who primarily cater to baby boomers who are about to retire or baby boomers who have already retired.

Some consultants specialize in clients in certain industries. For example, if you are a doctor or small business owner, ask if they have experience dealing with similar clients. You will need to hire a consultant with expertise in insurance and taxation that suits your situation.

How do you communicate with customers?

Make sure they are willing to communicate as often as possible when you are satisfied. Some customers are happy to meet once a year, while others prefer to meet every quarter. You also want to understand their accessibility outside of scheduled meetings. Ask them how quickly they usually respond to calls and emails.

Are they asking you questions?

The questions that the consultant puts to potential clients during the initial meeting can illustrate the problem. Financial planning is more than just numbers. It’s best to avoid consultants who focus on touting outstanding performance. Instead, they should ask about your financial goals, your possible concerns, and your tolerance for investment risks.

Bottom line

Although there is no shortage of financial advisors, choosing the right financial advisor can be daunting. It is important to interview the consultant you are considering like interviewing a job candidate. Make sure you understand how they are paid and whether they have the qualifications and experience to develop a plan that best suits your personal financial needs and circumstances.


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