There are many reasons why people decide to start working with a financial advisor. Sometimes, the trigger is a major life event, such as getting married, starting a new job, or preparing for retirement. Other folks look at major market fluctuations and economic changes and feel they need an advisor to help them find the best path forward. And others might need an advisor to guide them towards a major goal, such as starting their own company or buying a vacation house.
Whatever your reasons may be, it's important that you come prepared to the initial advisor interview. Here are nine questions to ask a financial advisor, and a little bit of color around the kinds of answers you want to hear.
1. Are you a fiduciary and do you always put your client's needs first?
Advisors who work under the "suitability standard" recommend investment products to clients but are under no legal obligation to make sure those products are the best choices for their clients.
We operate under the "fiduciary standard" at Keen Wealth. As fiduciaries, we are required by law to make recommendations that are in our clients' best interests.
2. What is your belief system?
The advisor should be able to articulate their investment philosophy and explain how their process is going to help you achieve your financial goals. You don't want to work with an advisor who doesn't have a strong point of view, or who will be reticent about giving you clear answers when you have questions about your financial plan.
Before you sit down with an advisor, you might spend some time investigating their websites, blog posts, podcasts, and videos. I'm proud of the library we've put together at KeenWealthAdvisors.com because we're not afraid to cut through the noise and let you know what we really think.
3. Where will my money be held and how will I know it is safe?
It's almost always in your best interests to work with an advisor who uses a third-party custodian to secure and insure your money. At Keen Wealth we use Charles Schwab. If a client wants to independently verify what's in their accounts and the allocations we've made on their behalf, they can contact Charles Schwab directly. You don’t get that extra layer of security with an advisor who keeps your money themselves, which is a common thread in many Ponzi schemes – including Bernie Madoff’s.
4. What is our working relationship going to be like?
You're a person, not numbers on a spreadsheet. Your advisor should be someone you can talk to about your hopes, concerns, and goals. He or she should be on speed dial whenever something happens that's going to affect your life and money. If you can't imagine sitting down with this person to celebrate a big raise or work through some tough estate planning decisions with an ailing parent, my suggestion is to keep looking.
5. Do you use checklists?
Ask the advisor to show you an outline of their annual process, including what services they provide, what they're checking for as they review your portfolio, what kinds of reminders they're going to send out to you, etc. If they can't do that, I'd have a hard time believing that advisor will be as thorough as possible about doing what's best for you. A financial plan is a complex and ever-evolving process that requires a sound structure for review.
6. Will you review my entire financial planning needs, or do you only focus on investment management?
Some folks might just want to work with an advisor who manages their portfolio. I believe in a more comprehensive approach to financial planning. We often help clients coordinate with professionals in tax prep, health care, and estate planning to make sure that every aspect of their finances is in sync.
7. How will you help me prevent significant investment losses when markets take big drops?
This is sort of a trick question.
If an advisor tells you that they have a strategy for isolating your investments from market drops or anticipating volatility so that they can pull your investments and move back in when the market bottoms, end that interview and move on.
The truth is that navigating losses is a part of investing. Market timing is dangerous and, for most investors, a surefire way to cripple your long-term earning potential.
What an advisor can do to help you prepare for a downturn is look for potential "buy low" opportunities, investigate strategies like tax-loss harvesting and Roth IRA conversions, and help you stay focused on the big picture.
8. What educational opportunities does your firm offer clients? How do you and your team stay on top of the latest developments in finance and economics?
I believe that the more involved you are in your financial planning, the more confident you're going to feel about that plan. That's why Keen Wealth hosts year-round educational events, both online and in-person, covering everything from the latest market data to cyber security tips. Our blogs and podcasts are another resource that gives our audience something new to think about every single week. And the prep that my team and I put into these events and content, along with attending conferences such as the annual Barron's Independent Summit, show that we're all committed to learning, communicating, and improving our quality of service.
9. If you were me, which other advisors would you be meeting with?
When I see a new face walk through the door at Keen Wealth, I know we're not the first firm that person has visited. I hope we're the last! But that's probably not the case either. In fact, I encourage folks to meet with as many financial advisors as they can before making such an important decision. Finding the personal and professional match that's right for you is vital to the success of your financial plan. If we’re not the right match, hopefully we can help guide that person to a firm that will be.
Bonus Question: "What are my total costs and how are they calculated?"
Some folks might feel like this question is going to lead them too far into the weeds, but you need to understand how your advisor gets paid and what other costs you might be responsible for. For example, in addition to advisory fees, you could pay fees on securities transactions and, depending on the firm's allocation strategy, internal costs of mutual funds or other packaged products. Make sure that you are getting the full picture so that you can compare “apples to apples” as they say. Those layered fees could add up to a small fortune, especially if you're not working with a fiduciary who's obligated to recommend the most cost-efficient options.
I hope this list of questions to ask a financial advisor helps you on your search. And, if you're thinking about meeting with Keen Wealth, I hope I've given you an idea of our answers, our process, and our commitment to helping folks achieve their financial goals.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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