There are many types of “financial advisors”; this title is not a regulated term with a standard meaning. In order to understand what you are paying for and what type of service you will receive, ask the financial advisor a series of challenging questions to gauge their fit for your family’s needs.
Question 1: Are you a fiduciary? If yes, can you explain your fiduciary oath? If no, can you explain why not?
Question 2a: How are you compensated? Please describe all sources of your & your company’s compensation and approximately what percentage of revenue comes from each.
- Do you have minimum fees?
- Will my fees change over time? If so, what factors will affect my fees?
Question 2b: Are you fee-only, fee-based, or commission-only?
- If you are fee-based or commission-only, can you describe the fee structures that clients are typically charged?
- If you are fee-only, do you charge based on my account size (known as “assets under management”), flat/project-based fees, or both?
Question 3: How do you approach client questions about real estate investments, either for personal use or for income & appreciation? Are your fees impacted if I choose to use my assets to purchase real estate?
Question 4: What is your view on traditional investments, such as stocks and bonds? Do you attempt to actively pick stocks & bonds you think will outperform, or do you generally invest in low-cost index funds that track the market?
Question 5: What do you believe are the most significant factors that will affect our ability to retire on time?
Question 6: What is your educational and professional background?
Question 7: Do you have any financial designations, and if so, what do they mean?
Question 8: Can you describe the financial planning process we can expect to undergo with your firm? What will happen immediately, and what will be implemented over time?
Question 9: How do you recommend I go about evaluating and purchasing insurance products, such as life insurance?
Question 10: Can you provide professional references that I can follow up with?
Additional resources for consumers are located with NAPFA, the National Association of Personal Financial Advisors. You can view a copy of NAPFA member’s Fiduciary Oath and Code of Ethics here, as well as top tips for consumers 5, 10, and 20 years away from retirement here. A more comprehensive question checklist is located here.
Search for a fee-only fiduciary advisor:
- XY Planning Network – all XY Planning Network advisors are also members of NAPFA; they also all offer some form of flat fees and generally do not have a minimum investment account size (though they may have a minimum fee that will be clearly stated). Fiduciary Financial Education is affiliated with Real Estate Wealth Planning, a fee-only financial advisor based in Texas.
Two final notes:
First, not everyone needs a financial advisor. For people that are looking to improve financial habits and start building wealth, you can either DIY using sites like Mint.com or youneedabudget.com.
Second, some people may benefit from working with a financial coach instead – search for one at the Association For Financial Counseling and Planning Education.
Want more info about how to choose a financial advisor?
Enroll now in this short course: How Do Financial Advisors Get Paid?