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BUSINESS PRACTICES 

BUSINESS PRACTICES


Building Your Practice

Choosing a Financial Advisor?

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10 Questions to Ask

Building a relationship with a trusted financial advisor can be key in the effort to achieve financial security. The challenge is knowing where to start. Getting the choice right can deliver a number of benefits:

  • Planning for retirement with the help of an experienced professional
  • Clarifying and simplifying complex financial issues
  • Relying more on logic and less on emotion
  • Helping identify potential issues and opportunities before they arise

Here are ten questions that may be helpful in evaluating an advisor.

1. As a financial advisor, what do you do? What is your specialty?

Every financial advisor can be expected to have a strength – or, better still, strengths. If retirement income is a priority, an advisor with expertise in retirement planning potentially can help. In situations of complex tax considerations, an advisor with tax planning experience may make sense. Investors should never hesitate to ask, “How can I benefit?” Experienced advisors can be expected to explain the benefits of their approach. 

2. Tell me about your professional experience. How long have you been offering financial advice?

An advisor’s track record can provide a number of assurances – for instance, that you have hired a seasoned professional with a history of creating beneficial client experiences. Simply knowing how long an advisor has been in business is one starting point. You may also consider asking for references from satisfied clients. Aside from those steps, the industry provides ways to research financial advisors. Entering a name and/or practice into FINRA’s BrokerCheck tool on www.finra.org reveals whether clients have lodged complaints against an advisor or firm. Raising the findings, if any, in person can shed additional light.

3. What professional designations do you hold?

Professional credentials and licenses from accredited organizations can signal an advisor’s knowledge of industry best practices and/or area of expertise. Some credentials awarded by firms internally afford the advisor additional privileges, such as creating investment portfolios. Others are awarded by external organizations after a series of exams or other criteria. Respected external designations include Certified Financial PlannerTM (CFP®), Chartered Financial Analyst® (CFA) and Certified Investment Management Analyst® (CIMA).

4. How are you paid for your services?

Some financial advisors earn commissions. Some work on a fee basis. Others earn both commissions and fees, depending on the product or service provided. Understanding how an advisor is compensated can lend insight and help you make an informed decision. Broadly speaking, you can ask about four different categories of fees: trailing (so-called “12b-1” fees), up-front (or “loads”), ongoing (meaning flat fees or a percentage of total assets, and trading charges. 

5. Who is your typical client?

References from colleagues, family or trusted friends can be a useful starting point. Many financial advisors develop expertise serving specific types of clients (i.e., retirees, small business owners, or corporate executives). Some advisors are focused on a specific occupation, such as physicians.

6. What process do you follow when working with clients?

Effective advisors use team structures and clearly articulated processes to provide excellent service. An advisor who stresses listening to clients, gathering information, assessing the overall financial picture and using this picture to build recommendations can lend assurance. Advisors can be expected to leave a clear picture of the processes they use to build great client relationships.

7. What service standards can I expect?

Advisors may face tradeoffs between servicing existing clients and developing new prospects, or between spending time on clients with large accounts versus those with small ones. Setting baseline expectations for the frequency of meetings and subjects of discussion can help prevent disappointment and misunderstanding.

8. What are the key components of your investment approach and how do they benefit me?

Understanding how an advisor meets clients’ needs can be critical. Some advisors offer a choice of hundreds of investment options; others prefer a select number of managers; still others prioritize risk-return characteristics or tax management attributes. Some use a tactical approach, making regular adjustments where necessary, while others take a long term or strategic approach. Understanding an advisor’s investment philosophy can help determine whether the fit is right. 

9. Do you follow a code of ethics or set of standards which I may review?

A set of professional standards can shed light on whether the advisor is the right one. In particular, understanding an advisor’s approach to subjects such as conflicts of interest, confidentiality, compliance and personal securities trading can help identify an appropriate advisor. Some advisors adhere to a suitability standard, requiring them to place clients in investments deemed to be suitable. Others are held to a fiduciary standard, requiring them to place client interests above their own. Whichever standard, knowledge of the principles governing an advisor’s practice is essential. 

10. Relative to my life goals, what is your assessment of my financial situation today?

Giving an advisor as much detailed financial information as possible can assist him/her in assessing one’s financial picture accurately. This can mean providing bank and brokerage account statements, accurate depictions of spending habits and indications of any major upcoming financial events. The more information, the better an advisor may become at assessing a situation: Clients may not like the message – but that may actually be a sign the advisor is doing his or her job. 

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