The world of financial advice and financial advisors can be confusing. Given the industry jargon and huge variability in types of advisors, the way they work with clients, the quality of the advice they give, their experience and credentials, and what they charge for their services, it can be hard to tell one from the next. In this episode, we share the five most important questions to ask when interviewing financial advisors. By asking these questions and comparing the answers provided by different advisors, you’ll not only have a good understanding of exactly what it looks like (and costs) to work with a particular advisor, but you’ll also be able to differentiate them and understand who the best fit for you is.
Outline of this episode
- Question #1 Do you work with people like me? [2:32]
- Question #2 How do you help people like me? [5:10]
- Question #3 How are you compensated? [7:44]
- Question #4 Are you required to act as a fiduciary 100% of the time? [12:21]
- Question #5 Can you tell me about your education and background? [14:37]
- The recap [19:12]
BEFORE you ask the questions
Ideally, before you start going through your questions, any advisor you talk with will hopefully start by first understanding your situation and what you're looking for help with. We know this isn't always the case, which can make it feel like that's normal for an advisor, but it shouldn't be.
If you go to see a physician, you wouldn't expect them to start off discussing all the patients they've helped, where they went to med school, or why their approach is the best. Instead, they should start by focusing on you, and it should be no different when talking to an advisor. With that in mind, and ideally after you've had a chance to share what you're looking for help with, the next step is trying to decide which advisor is best suited to help you and the five questions we cover in this episode are a great starting point.
The right personality can be as important as any questions you ask
When meeting with potential advisors it’s worth mentioning that there isn't one advisor out there who's always going to be the best fit for every person. It tends to be a very personal relationship and an advisor who connects well with one person may not be the best fit for every personality or life situation.
Keep the bigger picture in mind throughout your first call or meeting with an advisor, as it's helpful to be thinking about whether you like and trust the person, whether you would enjoy interacting with them on an ongoing basis, and whether you feel confident that they can help address what you're looking for. A big part of this is simply your comfort level with them from a personal standpoint. But the other part of trusting someone is knowing that they understand your unique situation and have helped other people in similar situations.
A quick summary of the 5 questions to ask a potential advisor
Here's a little info on the 5 questions we go through in this episode. Number one is, do you work with people like me? Ideally, you'll find an advisor who works with clients and people in a similar life transition like you, for instance, approaching retirement, starting a family, or finishing training to become an attending, or an advisor who has an understanding of your profession or employer.
Question number two is how do you help people like me? The goal here is to get a better understanding of the services they provide. Is it just investment advice or do they provide true financial planning? Will they help hand-hold throughout the process? Or do they just give recommendations and you have to implement them?
The third question is how are you compensated? There are three main fee structures here; commission-based, fee for service (or fee-only), and fee-based. The goal here is to know how someone is compensated to understand any potential conflicts of interest.
Number four, is, are you required to act as a fiduciary 100% of the time? A fiduciary is an advisor who has a legal obligation to always act in your best interest, which is different from the suitability standard, where the recommendations only have to be suitable for you, but may not be in your best interest. We would recommend against working with someone who doesn't work in a fiduciary capacity 100% of the time.
The last question is, can you tell me about your education and background? The most important and relevant certification here is the CFP designation, but the other two common and helpful certifications you can look at is having an advisor with a CFA or CPA.
Resources & People Mentioned
- Download our guide: The Toolkit for Optimizing Your Finances as an Employed Physician
- Download our guide: The Financial Checkup