Broker Check
8 Things to Ask A Financial Planner

8 Things to Ask A Financial Planner

June 20, 2020
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One of my favorite quotes is: “If you ask great questions, you’ll get great answers.” To get the best experience from a financial planner, you really need to know what questions to ask.

Whether it’s your existing advisor, or a person you have just met and are considering, here are eight good questions to ask.

1. “Describe your practice.” There are lots of ways to build a swing set. Listen to how the advisor describes her work.

2. “Do you get paid, or bonuses, or awards based on the investments recommended?” You want to understand if an advisor has a financial incentive to favor a product or service. It’s a business, and the way a person gets paid can influence other choices they make.

3. “How do you get paid?” Understand all the ways the advisor gets paid. Sometimes it’s through advisory fees. Sometimes it’s a sales commission. Sometimes it’s a credit for using certain products or services. Sometimes it’s a fee for referrals. Again, it’s a business, so you need to understand how it works. 

4. “What services do you provide?” I think of your financial life in six silos:

      1. Budgeting and cash flow

      2. Risk protection and insurance

      3. Wealth accumulation and investing

      4. Retirement Income planning

      5. Tax strategy and planning

      6. Estate and legacy planning

Some people work in one or two of the silos. Others, like me, provide holistic advice to help you make great choices in all six areas.

5. “Tell me about any customer complaints you have and how they turned out.” Watch for the reaction you get from the advisor. Few clients know enough about the industry to ask this question. See how she reacts. 

Every financial professional has a file with the regulators that lists any complaints and the outcomes of those actions. Check out Broker Check maintained by the Financial Industry Regulatory Authority (FINRA). And also try the Investment Advisor Public Disclosure site maintained by the Securities Exchange Commission (SEC). 

Be careful, some complaints can be unfounded but still remain in the record. Other complaints might be minor or very old. Discuss anything you see with the advisor and listen carefully to the response.

Advisors who work as a Registered Investment Advisor are required to provide you with a Form ADV at any meeting where you talk about financial advice. You should get one form describing the firm and another form describing the person with whom you are meeting.

6. “Do you recommend proprietary investments or receive income from investment products?” Some companies build their own products for clients. Often the company prefers, or requires, clients to use those products. Often, the company makes additional income from the products. Sometimes, a company won’t manufacture the products but they receive additional income from investment products on the “preferred list.”

If the answer is confusing or unclear, consider it a red flag. I believe that investors should clearly understand all the ways they pay for the advice and services they receive

7. “Are you a fiduciary? All the time?” The term fiduciary is used all the time in the financial service industry. It means the advisor is legally obligated to put the client’s interests first at all times. Today, some financial professionals act as a fiduciary when providing some services and they act as a Registered Representative of a stock brokerage or insurance agency when they sell other products. It’s in your interest to understand where those financial incentives lie

8. “Will you sign a fiduciary pledge?” If an advisor is acting as your advocate at all times, there is no reason they should not sign a pledge stating that. However, since some advisors are only “sometimes a fiduciary” they won’t sign a pledge.

Some brokerage firms, insurance companies and banks will not allow their employees to act as a fiduciary at all times and therefore won’t allow them to sign such a pledge. I suggest you think carefully about whether you want to do business that that organization.If you have the pledge in writing, it gives you much more leverage in the event you need to make a formal complaint

Here is an example of how a fiduciary pledge might look:

Fiduciary Pledge

I, the undersigned, __________________________________, ("Financial Adviser"), pledge to always put the best interests of __________________________________ ("Client or Clients") first, no matter what.

As such, I will disclose in writing the following material facts and any conflicts of interest (actual and/or perceived) that may arise in our business relationship.

All commissions, fees, loads and expenses, in advance that client will pay as a result of my advice and recommendations;

All commissions I receive as a result of my advice and recommendations;

The maximum fee discount allowed by my firm and the largest fee discount I give to other customers;

The fee discount client is receiving;

Any recruitment bonuses and other recruitment compensation I have or will receive from my firm;

Fees I paid to others for the referral of client to me;

Fees I have or will receive for referring client to any third parties; and

Any other financial conflicts of interest that could reasonably compromise the impartiality of my advice and recommendations.

Financial Adviser: _____________________________ Date: ____________________

Client: ______________________________________ Date: ____________________

Client: ______________________________________ Date: ____________________

If you are looking for a great financial planner, you might want to talk with a CERTIFIED FINANCIAL PLANNER™professional. CFP® practitioners are trained in all six areas of financial life and are held to a high ethical standard.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you make great financial planning choices and develop a holistic financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.