Here are my top 5 questions anyone should ask a Financial Advisor before they commit to the relationship.
1) Are you under a suitability standard or a fiduciary standard?
A fiduciary relationship is viewed as the highest standard of customer care available. A fiduciary relationship is important as you want to make sure the advisor is looking after your best interests.
2) What are your credentials and do you have significant experience in the financial industry?
Credentials such as CPA/PFS, CFP, and CFA are highly regarded. When the advisor holds one of these credentials, it demonstrates a level of education, experience and training. Credentials add relevance. Financial industry experience in the mutual fund, accounting, and retirement arena adds another level of experience. Combine credentials and financial industry experience, the advisor becomes a valuable resource to help make important decisions about your money.
3) Are your advisory fees transparent and how are you compensated?
A quarterly statement disclosing fees paid to the advisor including the calculation of their advisory fee helps you understand the fee arrangement and provides transparency. Asset based fee or fixed fee or hourly fee is preferred. If the advisory fee is based on a commission, you should make sure you understand how the commission is calculated and how a commission’s structure is different in various investment products. If the advisor is upfront about their advisory fees, it will help create a positive experience in your relationship with the advisor.
4) Do you provide an investment management agreement or financial planning agreement outlining the services you provide?
An agreement provides a level of understanding between both parties and should be an integral component of your relationship with the advisor. To provide investment management or financial planning services without an agreement is not right. It is your money so you should make sure an agreement is included, reviewed and signed.
5) Have you been disciplined by the SEC or State?
You want an advisor that you can trust. As such, you should spend the time to research the advisor’s background by checking FINRA.org. FINRA Broker Check provides information about current and former FINRA-registered brokers and brokerage firms. It also provides information about investment adviser firms and representatives through the Investment Adviser Public Disclosure website. Trust should be important to you not only through a background check but also that the advisor adheres to a professional code of conduct and ethics.