How to Choose a Financial Advisor: 7 Questions to Ask Before You Hire One
Choosing a financial advisor is about more than comparing investment performance or looking at credentials. Before you hire an advisor, you should understand what they will do for you, how they are compensated, who you will work with, and what you can expect from the relationship.
Here are seven questions to ask before choosing a financial advisor.
1. What services do you provide?
Start by understanding what the advisor actually does for clients.
Some advisors primarily provide investment management. Others provide financial planning that can include retirement planning, investment management, insurance and risk management, and other areas of your financial life.
Ask which services are included in the relationship and how they work together.
For example, someone approaching retirement may need more than investment management. They may also need help evaluating retirement income, Social Security, taxes, insurance, and how their investments support their long-term goals.
The advisor's services should match the decisions you need help making.
2. How are you compensated?
You should understand what you are paying before you agree to work with an advisor.
Ask whether the advisor is compensated through investment management fees, financial planning fees, commissions, or a combination of these. Then ask how those costs are calculated and whether there are other expenses you should know about.
A good answer should be straightforward. You should not have to decipher complicated terminology to understand what the relationship will cost.
3. What is your approach to financial planning and investment management?
Financial planning and investment management are related, but they are not the same thing.
Investment management focuses on your portfolio, including how your assets are allocated, monitored, and managed.
Financial planning looks at the decisions surrounding your money. Depending on your circumstances, that may include retirement planning, cash flow, taxes, insurance, and other financial priorities.
Ask how the advisor approaches both areas and how they fit together.
4. Who will actually be working with me?
Find out who you will be dealing with after the initial meeting.
Some firms have you meet with one advisor and then transition you to a different team member once you become a client. Others maintain a more direct advisor-client relationship.
Ask who will be responsible for your financial planning and investment management, who you will contact with questions, and how involved the advisor will be in your relationship.
You should know who you are hiring—not just the name of the firm.
5. How do you work with clients as their circumstances change?
Your financial situation will not stay the same forever.
Retirement plans can change. Income can change. Business circumstances can change. Major purchases, inheritances, insurance needs, and other decisions can affect your financial plan.
Ask how often the advisor reviews your plan and investments and what happens when your circumstances change.
Financial planning should be an ongoing process rather than something you complete once and put on a shelf.
6. Are you independent?
Ask whether the advisor is independent and whether the firm is tied to proprietary investment products or a particular company's solutions.
This does not automatically make one advisor better than another, but it is an important question to ask when comparing firms.
7. What should I expect from the relationship?
Before you become a client, ask the advisor to explain what the ongoing relationship will look like.
How often will you meet? How will your plan be reviewed? How will investment decisions be discussed? Who do you contact when you have a question?
You should also feel comfortable asking questions and telling the advisor when you do not understand something.
The right financial advisor should make the relationship clear—not make you feel like you have to figure it out after you become a client.
Choosing a Financial Advisor Is a Personal Decision
The best financial advisor for you is not necessarily the one with the largest firm, the most impressive credentials, or the strongest recent investment performance.
Look for an advisor whose services fit your needs, whose compensation you understand, and whose approach to financial planning and investment management makes sense to you.
Most importantly, pay attention to the relationship. You are not simply choosing someone to manage investments. You are choosing someone you may rely on for important financial decisions over many years.
At E.P. Wayne Financial Group, we provide financial planning, retirement planning, investment management, business retirement planning, and insurance and risk management for individuals, families, and businesses.
If you are considering working with a financial advisor, start by asking questions. The answers should help you determine whether the advisor—and the relationship—is right for you.