What questions do I need to ask a financial advisor before coming to a hiring decision?
I want to hire a financial advisor for the upcoming fiscal year. I've done a lot of research on what credentials are important for a financial advisor to have and what services should be included. Most of the qualities come down to personal preference though in my opinion. Like, do you want your financial advisor to operate under a fiduciary standard or suitability standard? I'm not sure. Should this matter?
Eli: A fiduciary standard was established as part of the Investment Advisors Act of 1940. It means that a financial advisor must do his or her best to make sure his/her investment advice is made using accurate and complete information. Avoiding conflicts of interest is important when acting as a fiduciary and it means that an investment advisor must disclose any potential conflicts to placing your interests ahead of his/hers. Additionally, the investment advisor needs to place trades under a "best execution" standard (i.e. he/she must strive to trade securities with the best combination of low cost and efficient execution).
A suitability obligation is defined as making recommendations that are consistent with the best interests of the underlying customer. Instead of having to place his/her interests below yours, the suitability standard only details that the broker-dealer has to reasonably believe that any recommendations made are suitable for you, in terms of your financial needs, objectives and unique circumstances. A key distinction in terms of loyalty is also important, in that a broker's duty is to the broker-dealer he or she works for, not necessarily you.
Unless you are well versed in the investment options you will be undertaking and are only looking for assistance with executing the transaction (i.e. you are not looking for advice or guidance), I would not want to work with someone not bound by a fiduciary standard.
Many advisors due to their registration are already acting as a fiduciary or under a fiduciary standard. That level of disclosure did not stop JP Morgan Chase from guiding their own bank clients to their own under performing products but they probably did disclose the relationship on forms but it doesn't mean they told them.
I suggest you think about a question I would ask you while determining if we were a good fit for each other... "what do see our relationship looking like?". What I mean is what do you want from the relationship, how holistic do you want it to be. Also, ask them what a typical account size is for them and how would they manage an account of your size?
I hope this is a good start. Scott's feedback was dead on by the way.
Eli - great question, here are my thoughts.
Are you legally bound to a fiduciary standard? This should be a yes or no question. Craw-fishing (not answering with a yes or no) means no, which means RUN!
How are you paid, this should be WILDLY transparent, and easy to understand. If not, RUN!
Are you a tax professional? If not, why? Taxes will likely be the one big thing that determines if you have enough, or not. Look for a CPA/PFS, you should be able to get the tax info needed from that kind of professional. My assistants and junior advisers are tax and investment professionals. Don't fall for the "we work with your tax professional" line, they don't and won't to any material extent. If they do, they should be paying the tax professional, not you. Since it would cost you or the non-tax investment person money to hire the tax professional no one does.
Yes, being both a tax and investment professional is hard work and requires a lot of time and continuing education. But that is what it takes to get it right day in and day out.
I accept some will disagree, mostly those who do not want to spend the 2 to 4 years it takes to get an Enrolled Agents certification, or the CPA certification.
This is one of the dirtiest businesses in the world. Many advisors / brokers / planners of all certifications and educational backgrounds can receive 40% commission on the cost of a trade. Many "fee only" discretionary management plans also incur hidden costs related to portfolio turnover and taxes, and incur excessive risks, even with a "superior return" and also kickback to the advisor.
I would look for a CFA who understands or works with professionals who understand tax implications and will put together a "investment policy statement" that outlines your return objectives, your willingness and ability to bear risk. It also takes into account any constraints you many have such as liquidity needs, or an upcoming need for cash, taxes, regulatory concerns, personal needs and preferences (no sin stocks?) etc.... and then recommend a portfolio that meets your discussed objectives, or discusses your objectives when this isn't possible. This will ensure suitability I believe in the way you are referring to it.
Education matters. I won't discuss the different accreditation but a google search of any qualification or search on the credentials of who runs mult-billion dollar funds, or large discretionary portfolio programs for high net worth individuals will give you your answer.
Because the industry is so geared towards selling and commissions (upfront, over time, and not always disclosed unfortunately, soft commissions like trips, dinners, sporting tickets, free research etc...). I would like for a fee-only advisor. It will be less expensive in the long-run.
Any CFA, has a fiduciary responsibility to the client first, and legislation changes but it is generally based on what a comparable expert will do (as indicated by Code of Conduct, which may be a higher standard than the legal jurisdiction you are in).
Good luck and don't hesitate to email with any more questions.
Ask to see their bank account. It if isn't as big as yours run. If it isn't as big as you want
yours to be, run. Seek out a highly financially successful person you admire and do whatever it takes to get their attention and convince them to mentor you.
It’s not easy to find a good financial advisor. After all, you have to trust him/her your money management.
Here are my list of the questions to ask:
- What are your qualifications? How long did it take you to get them?
- What is your experience as a financial adviser?
- How are my investments monitored, and what information will I receive?
- Can I talk to some of your current clients?
- How are you compensated?
The list goes on...
Prior to hiring a financial advisor, ask your friends for some recommendations. I personally use services of the guys from https://linkagemind.com/practices/capital-markets-finance/ .
Some thoughts that come to mind:
- Are they truly independent? or do they only recommend certain products?
- Are they recommending products centred on their commissions rather than the clients best benefit?
- What extraordinary results outside average returns have you achieved for yourself and your clients?
- Sometimes it best to pay for advice leaving you to determine the best investment vehicle or product rather than have free advice tied into commissions for your advisor.
All of the advice I have ever heard always said to only use a "fee only" financial advisor. One that does not get any commissions on any product he recommends and to avoid any advisors who operate on a commission basis. To me that makes a lot of sense. It does come from multiple expert sources.
I have financial advisors beating down my door all the time and would never deal with any of them. The suggestions the ones trying to sell me were always really poor. I would recommend you to be very careful picking out a financial advisor. The time and effort required to pick a good advisor is more than the time and effort required to figure out what to do with your money that will get you a better return than the advisor would.
i would ck if an advisor with successful background and wide range experiences, also has a good quality working team.
A whole picture planning advisor who is able to ck up every corner in financial life would be a good thinking, including:: Foundation part of protection, growth, tax & liability, last with cash flow. then goes to the discussion for clients' want,
it should be both fee based and commission based, be able to use most products in the industry to target the max. benefits for the clients.
for personality, it needs to be a real good listener to understand clients talking and thinking behind the talking language.
hope it helps,