5 Questions to Ask When Interviewing Financial Advisors

5 Questions to Ask When Interviewing Financial Advisors

By Kelley Caponigro
Assistant to the Chairman & CEO

Searching for a financial advisor can be really confusing. There are so many different types of professionals who call themselves advisors, as well as various designations and certifications to decode. For most investors, putting these puzzle pieces together to gain a coherent picture of a professional is just too much work.

To help decipher who is worth your time and focus, we have come up with five basic questions you should ask a potential financial advisor before agreeing to work with them.

1. Are you a fiduciary?
There’s a reason this is the first question investors should ask potential advisors, and that is because not all advisors are created equal. Some advisors work under the “Fiduciary Standard,” while others follow the “Suitability Standard.” Fiduciaries must work in your best interest all the time. They must reveal any conflicts and fully disclose how they are compensated. Advisors under the Suitability Standard must only offer products and advice that are “suitable” to an investors personal situation, but the advice does not have to be in the investor’s best interest.

Perhaps you have heard about the new Department of Labor Fiduciary Rule, which might lead you to believe that you no longer need to ask advisors this question. Unfortunately, the rule only applies to retirement accounts, so it’s still a good idea to not only ask, but get in writing, that the advisor will be working in your best interest as a fiduciary – all the time.

2. How are you paid?
If the advisor responds with anything other than “fee-only,” they are not acting as a fiduciary. Commission-based advisors, even if they are listed as “independent,” are not fiduciaries. Some like to use the word “fee-based” which is a euphemism for fees plus commissions. Don’t be fooled; fee-based advisors are also not fiduciaries. Fee-Only advisors are only paid fees directly by their clients; they do not accept commissions from any other source. This method of payment enables them to avoid the conflicts of interest that are so prevalent throughout the financial services industry.

3. What are your qualifications?
Decoding the acronyms that follow an advisors name can seem daunting. However, it’s important to understand what those letters mean before collaborating with an advisor. Certified Financial Planner (CFP®) is the “gold standard” in the financial industry. CFPs® must go through demanding classes, training, and testing to obtain this prestigious title. They must also abide by a specific code of ethics, pass a detailed background check, and complete yearly continuing education classes to ensure that their knowledge remains up to date.

You might also want to look for designations that support your specific needs. For instance, an advisor that is also a Chartered Financial Analyst (CFA®) has unmatched expertise on complex investments, and is considered the highest distinction in the investment management profession. A Certified Public Accountant (CPA) has additional expertise in areas like tax planning, estate planning and accounting. Meanwhile a Certified Senior Advisor (CSA) offers expert knowledge on the health, social and financial issues of the aging population.

For a complete list of professional designations, and their definitions, visit the Financial Industry Regulatory Authority (FINRA) Web site.

4. Do you have any references?
Advisors should be more than happy to offer 2-3 references upon your request. However, keep in mind that not all advisors use the same references repeatedly. They will need some time to get in touch with their client, and obtain approval to provide you with their contact information.

References will typically tell you how great their advisor is, so be sure to ask specifically why the advisor is great. Consider questions like:

  • Why did you choose to work with your advisor?
  • How long have you been working together?
  • Would you recommend your advisor to a friend?
  • Do you agree with his or her investment philosophy?
  • Do you feel that you have achieved Financial Freedom – and if so, how has your advisor helped you achieve this?

5. Do you have a clean record?
Visit sites like BrokerCheck provided by FINRA, or the U.S. Securities and Exchange Commission (SEC) to obtain a full snapshot of an advisor’s history. These reports include things like licenses, employment, and disciplinary history.

Although these five questions are important, if you’re looking to delve a bit deeper into your research, the National Association of Personal Financial Advisors (NAPFA) created a Consumer Resources section complete with an advisor checklist, diagnostic, and additional questions to ask potential advisors.

Above all, your financial advisor should be someone that you feel comfortable with, and that will provide you with support along your journey to financial freedom.

To discuss your financial future with an experienced Senior Wealth Advisor, contact us at 631.218.0077 or at info@rwroge.com, or send us a message by clicking here.

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