When you decide you need advice to meet your financial goals, be sure to keep these keys in mind as you select your advisor.
Currently there are very few common standards in the financial service industry, so it's easy for someone to say they are a financial adviser. As you look for a partner in building your financial plan, it helps to ask a few questions:
- Are you a fiduciary advisor? Do you, and your firm, agree in writing to place the client's interest first at all times? This is a big deal. Traditionally most financial reps have only needed to present legal products. Under the fiduciary standard they must represent the client's best interest at all times.
- How are you compensated? Do you receive ANY revenue from a financial service product manufacturer (brokerage firm, mutual fund company, or life insurance company)? Are you licensed to collect commissions, or other revenue, from brokerage transactions or insurance sales? You want an advisor who works for the client, alone.
- What will you do to reduce the cost of my investment program? It's not uncommon to find statements showing 1.5% for the advisers fee, plus the underlying mutual fund management fees, some as high as 1.5%. So, the cost to own the investments would be at least 3% per year.
Typical fee-only advisors charge around 1% for an advisory fee and use investments like exchange traded funds (ETFs) and low cost mutual funds with expenses less than 0.5%. So, in this case, the new client could save 1.5% per year on investment expenses alone.
- Whose responsibility is it to stay connected? How often should you expect to meet with the advisor to review your financial plan and your investment accounts? You should expect a regular schedule of updates and reviews each year. Typically at least one face-to-face meeting every year is a good idea.
- What happens to my account if something happens to you? Who is the person, by name, who will step in? How hard would it be for me to move my account elsewhere if that was required?
A good advisor will have a continuity plan in place so your needs will continue to be met no matter what. And a financial plan that is portable and liquid in case of emergencies offers you more options, if you need them.
- Why did you choose this work? Usually you find one of two kinds of advisors here. One loves numbers, economics and finance. The other loves the people s/he can help and the dreams s/he can help bring about. It's up to you to gauge how you fit with the advisor.
- Does the advisor ask questions, and listen to your answers? An initial interview should give you plenty of time to explain your goals and priorities. Beware if you find yourself listening to a canned presentation about fabulous product benefits.
- Mind if I bring a friend? Any person whose opinion you value would be great. Their impressions will be helpful, and merely their presence may cause a rogue advisor to conclude that you won’t be “worth the trouble.”
If these questions have you in a mood to talk, contact my office at firstname.lastname@example.org. I am always happy to meet new people. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.