What is a financial advisor’s most valuable asset?
A financial advisor’s most valuable asset is something much simpler than a tax plan yet much more difficult to find and nurture: trust.
Here are 5 powerful questions to ask a financial advisor in the first meeting.
1. Are you a fiduciary?
The fiduciary standard was created by the SEC and stipulates that advisors who uphold it are required by law to put the needs of their clients above their own. Built on a foundation of duty, loyalty, and care, this standard was designed to enhance the client experience and ensure advisors upheld the needs of the client first and foremost.
Another goal of the fiduciary standard is to limit or clearly express any conflicts of interest. A financial advisor who is a fiduciary needs to clearly state any conflicts of interest should they arise. This is important because conflicts of interest may limit an advisor’s ability to act in the client's best interest.
2. What is your fee structure?
Your financial advisor should be compensated. But how they are compensated can create conflicts of interest. This could include a fixed fee or an hourly fee. As well, assets under management (AUM) and commissions.
Advisors often use multiple fee structures based on the service provided. It is important that your financial advisor clearly discuss their fees so you don’t receive a surprise bill at the end of the month/quarter/year.
3. What is your investment philosophy?
Your goals should be able to clearly articulate their investment philosophy, strategy, and principles using evidence based methodology. If this isn’t the case, they might be operating the investment side based on a hunch rather than academic research.
For example, our investment philosophy is as follows:
Don’t try to time the stock market
Invest for the long-term
Diversification is key
Keep costs low
Keep taxes low
Maintain discipline
Don't invest based upon media headlines
4. How will we work together?
At the first meeting, ask:
What will be covered during our personal financial planning meetings?
Will you help me with budgeting?
With retirement planning?
Tax planning?
How does the financial planning process work?
Can you put your financial services in writing?
How often will we meet?
How often will you reach out to me?
5. What are your credentials?
This is important because financial planning strategies can change over time due to changes in law or advancements in research.
Common credentials and memberships may include:
Certified Financial Planner (CFP) = 30 hours of continuing education every 2 years
National Association of Personal Financial Advisors (NAPFA) = 60 hours every 2 years
Certified Public Accountant (CPA) = 120 hours every 3 years.
