Determining if a Financial Advisor is Right for You

August 26, 2020

The financial services industry always has been a little confusing for most investors, and with an increasing number in advanced designations (CFP, CPWA, CFA) , abbreviations (IRA, SEP, DC), and different approaches and products, it can very quickly begin to feel like an “alphabet soup”. The goal of this article is to serve as a guideline, to bring some clarity to our industry, and help you ask the right questions and ultimately help you to feel confident in a decision to hire a financial advisor.

In our view, the most important factor in a client – advisor relationship is trust. While this cannot be formed overnight, the cornerstone of the beginning of that relationship is alignment and transparency. We believe that it is of utmost importance for a client to ask the uncomfortable questions to ensure that they have a clear understanding of expectation. It will serve as a successful foundation, and untimely grow into that strong relationship with trust compounding over months and years of service. Advisors want to deliver a wonderful client experience, and total alignment between the client and advisor is the best way to ensure this.

Connection is also very important in a successful relationship. Ideally, you would want to select an advisor that serves clients like you (i.e. corporate executives, retirees, business owners), as often the same complexities will arise across the same demographics of clients. Make sure your advisor is comfortable and competent in serving you where you are in your financial life. It is often the little details that can make a large difference in the outcome over time.

When I am meeting with a prospective client, I am often asked the question “what else should I be asking that I haven’t already”, and as a result, we have put together a list of questions that we feel are important to ask when considering hiring a wealth advisor. We hope that these questions will serve you as you navigate the important decision to hire a partner in your financial design and implementation.

Questions to ask to determine if an FA is the right fit

  1. Are you a fiduciary?
    • Fiduciary in Latin means “trust”, translated into the financial services industry means that you are bound to act in your client’s best interest. Generally, clients will want to have an advisor that is bound to these standards as a professional, usually through an advanced designation such as a CFP®, CPWA® and also at the firm level – through a registered investment advisor, commonly known as an RIA.
  2. How do you charge?
    This is important for so many reasons – transparency is key here. We often tell clients that if they aren’t sure how they are being charged, they are often being overcharged. There are pros and cons to each, and a client should understand clearly how they are charged:
    • Assets under management (fee-based): usually a percentage of assets, which the fee will vary depending on market performance (higher when account balances are higher, lower when balances are depressed (i.e a market correction).
    • Commission-based: usually somewhere between 1-7% of the balance of the product being sold. Not always is there mandatory disclosures on the amount of the commission, again varies by firm and product.
    • Performance-based: usually a much higher percentage of the gain on the account. Example: 15-20% of the balance over the initial threshold amount.
  3. What are your qualifications/education?
    • Financial planning and wealth management can be complicated practices, and there isn’t always a difficult barrier to entry. It is important to understand the background of the advisor that you are working with, and their experience level. Advanced designations are extremely important to us, as they are designed to be rigorous education programs with difficult testing requirements to earn the designations. We like to think of it as a master’s degree specific to our craft.
  4. What types of clients do you work with?
    • It is important for a client to hire an advisor that understands them. How they think, how they want to act, and where they want to be. Connection is important so that an investor can have confidence in their advisor that they understand and can relate to them on some level. In our opinion, much is gained by hiring an advisor that is used to serving clients that can meet you where you are in your financial design. As an example, an advisor serving energy executives probably has a very different set of needs than a retiree in a distribution phase. Finding a “good fit” is key – an advisor should be able to clearly communicate why they are well suited to serve you.
  5. How do you prefer to communicate with clients, and how often?
    • Setting expectations and alignment is key. Clients can have very different expectations (some want to touch base weekly, others want to meet 2X a year). Make sure to be clear on what you expect, and how those meetings will take place (virtual, in person, or a combination).

Our hope is that these questions will serve as an outline for a productive discussion to allow for confidence in your important decision to select a wealth advisor. As always, we are here to help answer any additional questions or concerns you may have related to this topic.

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