5 Questions to Ask a Potential Financial Advisor, Ep #9 

5 Questions to Ask a Potential Financial Advisor, Ep #9

What should you ask a potential financial advisor? How do you make sure you hire the right person? How do you find a financial advisor that actually cares? In this episode of Retirement Made Easy, I answer a listener question by sharing the five top questions (+ a bonus question or two) you NEED to ask a potential financial advisor. Don’t miss it!

You will want to hear this episode if you are interested in…

• [0:31] What do you ask a potential financial advisor?
• [2:21] Question #1: How long have you been doing this?
• [4:46] Question #2: Do you have a specialty?
• [6:57] Question #3: Are you a fiduciary?
• [8:08] Question #4: How are you compensated?
• [13:14] Question #5: What does working together look like?
• [15:31] Bonus question: How many clients do you have?

How long have you been doing this?

This is the first question you should ask your potential financial advisor. If you’re about to retire, you want to hire someone to help you navigate through retirement. So I would caution you: don’t hire someone who is in their 60s or 70s. They’re going to want to retire at some point too. You don’t want to be searching for another replacement right away.

You should look for at least 10+ years of experience in a financial advisor plus the right credentials. A Certified Financial Planner (CFP) is the gold standard. A Certified Public Accountant (CPA), Chartered Financial Consultant (CFC), and Accredited Investment Fiduciary (AIF) are also popular choices.

What do you specialize in?

Hopefully, their answer is retirement planning. But some of these professionals specialize in insurance planning (life insurance, auto insurance, etc.). That’s probably not someone best-suited to help you with retirement planning. Just like doctors and lawyers have their own specialties—so do financial planners. Some work with retired government workers (highly specialized) or specialize in 401k or 403B plans (better for a group). The bottom line is that you want to hire someone who specializes in exactly what you’re looking for.

Are you a fiduciary?

By law, a fiduciary has to act in their client’s best interests—and put them ahead of their own at all times. A financial advisor is not required to be a fiduciary which is why you MUST ask. That doesn’t mean someone who isn’t a fiduciary is a bad person—but I would prefer to work with a fiduciary. I want to know they have to work in my best interests.

How are you compensated?

Do you know how you’re paying your financial advisor? Are you paying fees or commissions? This is something you NEED to know. If you are going to have a working relationship, you should know the way they’re being compensated. What are the methods in which they can be compensated?

• Commission-based structure: If a financial advisor recommends certain investments, he or she charges a commission when you buy or sell—similar to a real estate agent. It may be 2% or it may be 5%. It should be disclosed up front.
• Hourly fees: Just like an attorney bills by the hour, you may pay your financial planner by the hour. They may be analyzing a portfolio or building a plan.
• Advisory fee: this is the most common way to get paid. This comes directly out of your portfolio (a 1% fee is common). It’s also a great way to track your progress. You can check your statements to see what you’ve paid.

Advisors shouldn’t be ashamed of how you’re being compensated. They are bringing value to your life if they’re good at what they do. Are you getting a good value for the dollars that you’re spending?

What does the process of working together look like?

How often do they communicate with their clients? The #1 reason people were dissatisfied with their financial advisor? Because they didn’t communicate with them. Find out ahead of time what you’re getting into. How are they keeping you updated on your financial plan? Will you meet with them over the phone or a Zoom call on a quarterly basis? You will have changes in your life and adjustments that need to be made with your plan. So you need to know how often you’ll be communicating with your advisor. I share a bonus question you should ask—so make sure you listen to the whole episode!