If you’re looking for a financial advisor in Philadelphia, Sarasota, or Ohio plan on asking questions. That’s the only way to ensure that the advisor will meet your needs and that you’ll feel comfortable with the person.
Start By Asking Yourself Some Questions
Before you start the process, though, it’s a good idea to ask yourself some questions. What are your chief goals? What’s your current financial situation, and does it allow you to meet those goals? Your financial advisor will likely ask you these questions, so be prepared for open and honest communication.
A financial advisor should be able to offer advice in the following six areas. Have your conversations once you have information in mind about all of them.
- Monthly budget and cash flow – Knowing your income and expenditures are essential to understanding the rest of your financial life.
- Investments – An advisor should be able to give you recommendations and commentary on monthly, quarterly and yearly performance, as well as asset allocation recommendations and yearly rebalancing.
- Retirement – Are your retirement savings in line with your goals for retirement?
- Education savings – The steep cost of higher education has led many parents to make education savings part of their planning.
- Risk management – Are your assets insured and otherwise safe? Do you have adequate life insurance for your dependents?
- Estate planning – You should have a signed will in place and it should reflect your current wishes. An advisor should make sure of this, and also give advice on powers of attorney later in life.
Questions for a Financial Advisor
1. Are you a fiduciary?
It’s very important to make sure your financial advisor is a fiduciary because that is the only designation mandated to act with loyalty and good faith and required to put your financial interests above their own.
All of the advisors at Financial Freedom Fee-Only Wealth Management are fiduciaries. This means we are always obligated to place your best interests first. Your success is our success.
Financial advisors who are not fiduciaries are held only to a suitability standard, rather than a fiduciary one. Under a suitability standard, your financial advisor must make suitable recommendations and investments.
If you are older and want only conservative income-producing assets in your portfolio, for instance, they need to abide by that. But they could choose to purchase instruments and products that give them the largest commission possible. Fiduciaries could not because they can’t put their financial interests above yours.
2. How are you compensated?
Fiduciaries can be paid advisory fees only (based on a percentage of your assets, a flat rate, or an hourly rate) or a combination of fees and fee-based commissions. They can’t be paid only via commission. Suitability standard advisors, on the other hand, can be paid only on commission.
At Financial Freedom, we are a fee-only wealth management firm. “Fee-Only” means our compensation comes only from our clients. We do not earn any commissions or fees on the investments and recommendations we make to you. Likewise, we do not earn any referral fees or commissions.
Fee-only may be the most prudent type. Don’t underestimate the amount of portfolio erosion that can result from high or frequent commission charges.
3. Tell me about your average client
Look for an advisor who services clients much like yourself. Why? Because they will have more expertise in the issues that pertain to you. If you have a high net worth, for instance, your issues may be very different from someone with medium net worth and certainly very different from someone just starting out.
4. What is your communication style?
To some degree, the communication style depends on your comfort level. But you should look at a few things.
First, you need a substantive meeting about your finances at least once a year. Your advisor should discuss your investments and their performance, give you advice on reallocating assets and rebalancing and ask about any changes in your goals and your life. Significant life changes such as marriage, divorce, birth, and death can all trigger changes in your plans and your decisions.
Second, the best advisors have local experience. The Philadelphia, Sarasota, and Ohio areas have circumstances unlike any other area of the country. Tax laws, real estate prices, new regulations and laws regarding estates are just a few of the local issues that affect your financial life. Meeting in person is important. Specifically, ask the advisor how often you will have face to face meetings.
Third, you should ask how accessible your advisor will be. At Financial Freedom Fee-Only Wealth Management, Our firm has SDR – Same Day Response – where we will respond to phone calls or e-mails the same day they are received
5. What’s your background in financial advising?
It’s best to ask an open-ended question about a financial advisor’s background, so they can fill you in. Make note of several things, however.
- Educational background – it’s best if they have a related degree, such as finance, business or investing. Many people without that background work only as salespeople, even if they have a title like “asset manager” or some such. Their primary role is selling financial products, not advising.
- Professional designations – Look for a certified financial planner (CFP®) and registered investment advisor (RIA) designations. CFP®s must be well versed in finance, have several years’ of experience and have passed the CFP® Board exam. RIAs are fiduciaries (institutions or people can be RIAs). At Financial Freedom, ALL firm members are CERTIFIED FINANCIAL PLANNER™ professionals. We believe that the education, examination, and experience requirements of the CFP® program are a required minimum to provide outstanding wealth management services.
- Experience – Remember, stocks have been in a bull market for slightly over a decade. Someone with less than 10 years’ experience will only have seen good times in stock market investing. Assess whether they have the seasoning to fulfill your needs.
6. Explain X to me
How can you tell if an advisor explains financial concepts and principles well? Ask them to do it! Choose a concept you know something about (but don’t reveal that you do). You’ll be able to ascertain if the explanation you receive is comprehensive and clear to you. You’ll also be able to compare all the advisors you’re interviewing.
Questions could range from “explain what annuities are” to “is an educational savings plan right for my family?”
7. Under what circumstances would you change your investment recommendations?
Investment recommendations have a large impact on your portfolio, of course. You want an advisor who keeps taps on the market and on your short- and long-term goals. You need to know what would cause them to want to change your portfolio.
Contact Financial Freedom Fee-Only Wealth Management to schedule a free consultation.