People turn to financial advisers with specific questions in mind: How do I get ready to buy a house? Is my retirement account in order? Can my investments perform any better? But first things first: How do I find a good financial adviser? Asking friends and family for referrals is a start, but even then it's wise to do your own vetting. Use the following questions as a guide when interviewing potential candidates. Experts recommend meeting with several before deciding which one best meets your needs.
Will you be working with me personally?
Off the bat, make sure the person on the phone or the other side of the table will be at least partially in charge. Depending on the firm, planning may be handed off to an associate, team, or even outside experts such as attorneys or tax specialists. Ask to speak to everyone who will have a substantial role in advising you.
How do you make money?
Financial advisers generally earn money one of four ways: They work for a financial advising company (such as Merrill Lynch); they are paid a commission by a company whose products they sell (such as insurance or mutual funds); they charge clients a fee to make a plan and earn commissions when clients buy specific products; or they're paid solely by clients. Making money on commissions isn't necessarily bad, and is certainly cheaper up front, but the adviser might be limited to selling specific products or be influenced by the commissions. Fee-based and fee-only advisers charge clients in several ways, such as hourly, a retainer, or an annual fee based on a percentage of the client's assets under management.
Are you a fiduciary?
The answer to this might be teased out by the previous question, but it's good to ask directly. Fiduciaries have a legal and ethical obligation to work in their clients' best interest, meaning they won't recommend expensive financial products when there are better alternatives. Ask an adviser to sign a fiduciary oath to solidify the relationship.
How do you describe your advising style?
Some people want to hire a financial adviser to work with them; others want to be hands-off and have the work done for them. Whether the adviser has complete control over funds or needs to check in to discuss goals before making a decision, the only wrong approach is the one that doesn't work for the client.
What can I expect?
David Weliver, founding editor of Money Under 30, says it's wise to set expectations from the start. Ask the adviser what he or she will provide in the coming year that can't be attained by investing on your own. Advisers shouldn't promise a specific return on investments -- in fact, if they do, it's a warning sign to move on -- but this gives them a chance to describe their track record and relationship with clients.
What services do you offer?
Financial advisers do more than just create retirement plans and tell clients where to invest. Other common services include helping maximize employee benefits, tax planning, and insurance planning. Some advisers also specialize in specific areas, such as student loan debt or estate planning. Online automated investment services can create a well-diversified portfolio for anyone in minutes, but a good financial adviser will be there to manage emotions and answer questions.
Do you have a financial adviser?
Believe it or not, many advisers have their own financial advisers, and it's a good idea to ask what they like and don't like about that relationship. If you speak with advisers who manage their own finances, ask why, and whether they see any advantage or downside to doing so.
How and when are meetings held?
Some people prefer to meet in person; others like the flexibility of a phone call or video chat. For busy professionals, early morning, evening, or weekend meetings likely work best. Advisers should be able to accommodate their clients.
Do you provide ongoing advice?
Financial situations don't remain stagnant, and an adviser should be there along the way to give guidance. Advisers generally check in several times a year, but a financial crisis or opportunity can pop up at any moment. Ask if the adviser is willing to respond to out-of-the-blue phone calls or emails, or if they're willing to move scheduled meetings as needed. Also, schedule ongoing meetings to make sure everything is on track.
What certifications or affiliations do you have?
"Financial adviser" is a broad term, and the industry is not well regulated. Professional certifications and affiliations can help verify credentials, but there are many certifications, and even those can get confusing (certified public accountants can also be certified as personal financial specialists, for example). Look for advisers who are certified financial planners (CFP) and chartered financial consultants (CFC), certifications that require extensive coursework and several years of professional experience. Double-check certifications and investigate whether there have been disciplinary actions against an adviser. The CFP Broker Check tool
can help, as can the websites of the Financial Industry Regulatory Authority
and National Association of Personal Financial Advisors
How do you keep your education up to date?
To maintain certification, financial advisers are required to keep up their education. For example, CFPs must complete 30 hours of relevant continuing education every two years. Ask the adviser which programs or courses they enroll in to meet this requirement.
Can you explain things in simple terms?
Finance is filled with jargon, but a financial adviser should be able to communicate with clients in terms they can understand. If half of your first meeting is spent asking for clarification, don't expect future calls or meetings to be different.
Can you provide references?
When choosing a financial adviser, it's okay to ask for references. Even if the adviser doesn't have clients who are comfortable sharing their experiences -- money is a touchy subject, after all -- they should at least be able to provide a few professional references. Many advisers work with bankers, accountants, attorneys, and other professionals to put clients' plans into action.
How do you feel?
This is a question for you, not the adviser. Most financial adviser relationships are long term, and the fit has to be right. If it feels wrong despite "correct" answers to all your questions, keep looking. You should feel comfortable disclosing your financial situation and your fears and dreams about the future.