You should prepare a list of questions for a financial adviser before hiring them to manage your money. First and foremost, find out if they’re a fiduciary who is required to operate in their client’s best interest, regardless of how they’re compensated. Next, find out how they’re paid, what services are included, and how often they communicate or meet with clients. To find out if the financial adviser is a good fit for you, you can ask them to explain their investing approach and describe their typical client. Handing over control of your money can be scary, but there are a few important questions you can ask to find the right person for the job. Financial adviser is a catch-all term that usually includes financial planners and investment advisers. A good certified financial planner can organize your overall financial picture and implement strategies that will help you achieve your goals, from putting your kids through college to retiring when you want. An investment adviser usually focuses on managing the money you invest in the market, but can also provide some financial guidance in other areas. Below are a few of the most important questions to ask a financial adviser you’re considering hiring.
Are you a fiduciary?
First and foremost, you want to ensure your financial planner or investment adviser is a fiduciary. A fiduciary is legally bound to put their client’s interests first. If they’re not a registered fiduciary, they may follow a loosely monitored “suitability” standard, which allows them to make recommendations for investments and services so long as it’s suitable for their client’s goals, risk tolerance, and financial situation. Usually this translates to recommendations that will also earn them money.
How much do you charge?
There are two types of financial advisers: fee-based and fee-only. To visit with a fee-only financial adviser, you will pay a flat fee, hourly fee, or if they’re handling your investments, an asset under management fee equal to between 1% and 3% of your total assets. If you’re meeting once or twice to create a financial plan or get advice, you can expect to pay anywhere between $100 and $300 an hour. If you’re looking for access to an adviser on a rolling basis i.e. you want help implementing and maintaining your financial plan you may pay a fixed fee, usually between $1,000 and $3,000.
Do you earn commission?
If they answer “yes,” they’re considered a fee-based financial adviser. Fee-based financial advisers earn commissions based on where you put your money, and also may charge a fee for their time or an asset under management fee. By contrast, fee-only advisers do not receive additional commission when a client invests in a certain fund or financial product. Their only objective is to provide sound financial advice. This doesn’t mean a fee-based financial adviser will necessarily work against your best interests. It only means that they may be more inclined to recommend products and services for which they get a commission, which may or may not be the best option for your financial planning needs.
What services are included?
A good financial planner should be able to offer guidance on every aspect of your financial situation, though they may specialize in a certain area, like retirement planning or wealth management. Make sure it’s clear from the get-go what the cost includes and whether they’ll spend more time focusing on any one area. An investment adviser is usually only focused on managing investments, but may also provide guidance on other aspects of your financials. Again, make sure you know what exactly is included in their menu of services.
How often will we communicate?
If you want more than a one-time meeting, you’ll probably pay your financial adviser a retainer fee. Find out exactly what this fee gets you for example, maybe it’s one face-to-face meeting and one phone call a month and ask if there are any additional fees that apply for overtime. It can be scary putting your money in someone else’s hands, so an open line of communication is essential. Ask the financial adviser how they’re best reached by text, email, or phone for both urgent and non-urgent matters.
Can you describe your typical client?
Asking an adviser about their typical client can help you decide whether they’re a good fit for you. Some financial planners specialize in helping high-net-worth families or business owners or first-time investors in their 20s and 30s. If you identify with their typical client, chances are they have the tools and expertise to help you, too.
What is your investment approach?
If you’re handing over control of your investments, make sure the adviser’s approach to investing is aligned with your risk tolerance. For example, an adviser may prefer aggressive growth strategies to preservation. That usually means they’ll risk more of your money in order to (hopefully) score a bigger return. Ultimately, a good financial adviser should be as mindful with your investments as they are with their own, taking care to avoid excessive fees, save money on taxes, and be as transparent as possible about your gains and losses. If you’re hiring a fee-based adviser, know that their strategy for your investments may include products or services for which they receive a kickback. If this is the case, ask to read over any disclosures.