Financial advisors are a dime a dozen. We all do the same thing, we use the same tools, and all the investment vehicles our cookie cutter. In one of my last posts, I emphasized having a solid connection to the advisor as a person. But, even if you are swept off your feet, you always want to be careful and ask the right questions. This is your financial future, after all, this is your livelihood, and this is the future for your children. So, you really can't afford to mess this up.
Here are a few questions that you may want to ask an advisor when you are trying to figure out if they are the person for you.
Are you a fiduciary? This is an important question because most bank advisors are not fiduciaries. A fiduciary is, In simple terms, someone that is legally bound to put your interests before their own. That sounds like a no-brainer, right? Unfortunately, some advisors and companies create workarounds to try to sell you products you don’t need. So, when you move forward with an advisor, you're going to want to have somebody who can look you in the eye and say, yes, by law I am looking out for your best interest before mine.
How do you get paid? As an example, I'm paid two ways, firstly through the insurance that I sell, and also in the residual income I make from managing somebody's assets. If an advisor is any good at their job they should have a third way they get paid and that's through referrals. Frankly, it is the most important way advisors are paid. Referrals make an advisor’s business grow and if an advisor is getting a referral it means that they've provided value, guidance and understanding to somebody's financial plan. It is the gauge most advisors should be measuring their success on.
What happens if you leave? This is a great question; one that you need to ask an advisor. Even if the advisor is 20 years younger than you, you need to understand what their succession plan is if they get hit by a bus tomorrow. If an advisor can't tell you who is taking over their business if something happened, that is a red flag. It means they haven't thought enough about their client’s well-being. I can guarantee their practice will be sold to the highest bidder, not to the best advisor for you. But, then again, if they're dead, there's no more fiduciary responsibility.
How do you plan to keep me on track? This stems from the idea of a financial plan and keeping somebody’s financial goals in front of them. You never want to work with an advisor who is going to let your financial plans get derailed. This is your retirement, and you will definitely need to hold your financial advisor accountable to help you retire comfortably. That said, this is your retirement; you are fully accountable. So, what is that financial advisor going to do to keep you on track? Possible options include meetings on a quarterly basis or having you compile your documents at the beginning of every year and redo the financial plan. It could mean that you allow yourself to be open-minded (but don’t let your brains fall out) about alternative investments they are offering.
What's the advisor's process? In my post on How to Hire a Financial Advisor, I mentioned that it's all about trust; understanding and knowing your advisor not just on a professional level but on a personal level. The hiring process is going to be incredibly important. At the end of it, you are deciding if this person is going to be your advisor for the next 30 years or until you're in the grave. When I phrase it that way, it kind of seems like a big deal. I am a fan of a four-step process: an introduction meeting, a fact-finding meeting, a recommendation meeting, and a conclusion meeting. If at the end of the four meetings a client needs to have a 5th, 6th or 7th meeting to feel comfortable enough to make me their advisor I am more than happy to take that time with them. It's about the trust and the relationship that's being built throughout that process and that's what's going to allow both parties to understand each other better.
What do you do other than financial planning? You want to know your advisor. You want to know if they play golf or hockey, if they play a musical instrument or if you have anything in common with them other than the fact that you are working towards the goals of your financial future. Remember a financial advisor is not just an order taker, they are somebody who is going to be in your life. Chances are if you get a good advisor and you're a good client, you're going to see your advisor at birthdays, weddings, and funerals. The financial advisor will be dealing with all the most important things in your life with you and will be present for some of the most important moments in your life. It's important to get to know the person not just the plan.
One additional thing you may want to ask your advisor is how many clients they work with. Advisors really should only have 100-120 clients. If you have more than that, the advisor becomes more of an order taker and stops being an advisor. As of right now, I hold about 25 wonderful relationships and even that can take a lot of time and effort. If you have an advisor who tells you that they have 1000 clients, how could they possibly give you the service you deserve and pay attention to the details that your entire financial future depends on?
At the end of the day, I can tell you that I really enjoy being with my clients. I have some of the best clients that an advisor could ever ask for and if they left me tomorrow, I would be incredibly sad. Not because I'm losing a client and a paycheque, but because I'm losing a friend.
If you have any questions or would like to get in touch with an expert on financial planning in your area, shoot me a message and we will get back to you as soon as possible!
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