Choosing the person who will assist you in reaching your financial goals is a vital decision. Whether you are seeking advice about building a secure retirement, selling a business, planning for college expenses, or assisting aging parents with their finances, the counsel you receive from your financial advisor can mean the difference between success and disappointment.
But how can you tell if the person you are considering is truly a professional financial advisor, or just someone who wants to sell you various products? What is the difference between an advisor who will do what is in your best interest and an advisor who will merely do what is appropriate, but not necessarily optimal for your situation?
Here are some questions you can use to evaluate the type of service and expertise you can expect from someone you are vetting to be your financial advisor. Asking these questions and carefully listening to the answers can give you important insights about the type of advice and counsel you can expect to receive.
1. Why are you in this business? This may seem like a question better suited to a job interview, but if you think about it, that is exactly what you are doing: hiring the person best suited for a very important position in your private enterprise. What motivates this individual? What need or drive gets him or her out of bed in the morning?
2. How do you arrive at your recommendations? On what sort of research does this individual base his or her advice? What sort of resources do they have access to? What constitutes a well-founded recommendation?
3. What is your educational background and what professional qualifications do you have? Has this person undergone specialized training beyond what is required for licensing to sell securities? What organization provided the training? What professional certifications does the individual possess? After all, you will be potentially entrusting your life’s savings to this person; shouldn’t he or she have in-depth knowledge of the financial markets, various investments, and financial strategies appropriate to your situation?
4. Where is your money invested, and why? Not all advisors will be willing to share this information, but those who are will also be able to explain their investment rationale in a way that you can understand. What they are doing for their own accounts may or may not be right for you, but the reasoning behind what they are doing can give you a sense of their financial insight and ability to build and follow a strategy.
5. How would this investment or strategy fit my financial goals? Ideally, an advisor will be more interested in understanding your total situation, goals, timeframe, and investment philosophy than in selling you a particular product or service. If the advisor cannot place a product or service in the context of your overall financial strategy, it may be a clue that they are more interested in selling you things than in working with you over the long term to reach your important objectives.
6. How are you compensated? Financial advisors and representatives get paid in various ways. Some are paid from commissions on the products they sell; others charge a fee for their services based on the amount of assets they are managing for you. Some charge hourly rates, and some are paid fees by the companies whose products they represent. Seek out an advisor who will make recommendations based on what is in your best interest, not based on how much they get paid to sell a particular product or service.
7. Are you required to do what is in my best interest, or only what is suitable for me? This question may be the most important of all. Advisors who adhere to the fiduciary standard must always give advice and recommendations that place the client’s best interest ahead of everything else. Advisors who are only required to meet the “suitability” standard may make various recommendations, as long as they are deemed “suitable” to the client’s situation. There is no higher standard for financial advice than the fiduciary standard.
Taking the time to ask these questions is a crucial step in making the right choice for your professional financial advisor. Have questions about the search process or want to learn more about key questions to consider? Contact Empyrion for more information.
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