Benjamin Beck, CFP®With the extra volatile post-pandemic economy, potential changes in the tax landscape, and the inflation rates of recent years, it’s more important than ever to be financially prepared for the future and the unexpected.
The right financial advisor can help you navigate these uncertain times and help you not lose sight of your long-term goal. The wrong advisor may point you in a direction that will not get you there, anywhere, or even worse, to a place in their best interest — not yours.
If you Google “questions to ask a financial advisor,” you'll come across hundreds of blogs, videos, tips, and guides that promise to help you cut through the noise — but are these really the right questions to ask?
We googled some of the top questions that consumers are told to ask when looking for a financial advisor. Let’s see if they’re truly helpful in determining whether the person you’re looking to hire is indeed the best candidate to guide your financial future.
Financial Advisor Question #1: “What Are Your Credentials and Qualifications?”
Here’s the scary part: Just about anyone can call themselves a financial advisor. But that doesn’t mean they should be one.
Consumers are routinely advised to ask financial advisors about their educational background. Even if you meet the best educated, most highly credentialed professional, you can’t assume they have the experience to match it.
Credentials without experience mean nothing. But does asking the advisor about both their qualifications and experience make it any easier for you to tell if they’re right for you?
I’m doubtful about that.
Maybe you think, “Well, the firm they work for should stand for something.” Perhaps you are impressed by the name recognition of their firm, some big name you see advertised on TV, online, or at airports.
Even that doesn’t mean much.
Many people have entrusted the “wrong” people at the “right” firms with their hard-earned money. Credentials, qualifications, brand name recognition, none of these will definitively help your decision-making process.
But let’s say you go ahead, as advised, to ask them about their “credentials and qualifications.” Would you even know what the various designations mean when they tell you they have achieved this designation, taken that test, or studied a particular curriculum?
So many advisors today have an alphabet soup of letters after their names — from AEP (Accredited Estate Planner) to BPC (Bucket Plan Certified…seriously?) to MFP (Master Financial Planner) to WMS (Wealth Management Specialist) and everything in between.
Who knows what all these letters mean, and what they represent?
FINRA, the Congress-appointed body whose role is to “protect America’s investors by making sure the broker-dealer industry operates fairly and honestly” lists over 250 professional designations on its website and in bold red type on the same page states, “FINRA does not approve or endorse any professional credential or designation.”
So much for asking the financial advisor about their credentials and qualifications.
If knowing about their qualifications is that important to you, then you should know that among all of the designations out there, the CERTIFIED FINANCIAL PLANNER® certification (or CFP® for short) is widely recognized as the most comprehensive and relevant for advisors who provide financial planning, advice and investment services to individuals.
Financial Advisor Question #2: “How Are You Compensated?”
OK, this isn’t THAT bad a question, but there are important aspects we must point out about it.
We do, in fact, think you should be asking anyone you select to guide you as to how they are compensated. The trouble is that most clients don’t have a deep enough understanding of the way advisor compensation works to understand the advisor’s answer to this question.
The key is knowing the definition of the term “fiduciary.”
Essentially, a fiduciary is someone who will put the client’s interest above all else, all the time, no exceptions. A fiduciary will be transparent about any conflict of interest before or during the engagement, and they will be transparent about everything they do, clearly explaining how they are compensated and by whom.
You may have encountered the terms “fee-based” advisors and “fee-only” advisors. When you select an advisor whose compensation is in some way derived from commissions on the sale of any products, that could be problematic. A “Fee-Only” advisor is entirely transparent in that respect: no commissions from product sales, period.
Remember, not all financial advisors are fiduciaries.
Often a client will ask, “how much do you charge?” which is an entirely different question, not to be confused with “how are you compensated?” I have plenty to say on that topic in other blogs we’ve published.
Financial Advisor Question #3: “What Type of Services Do You Offer?”
Conventional advice is to look for a financial advisor who offers a range of services, things like retirement planning, college planning, investment management, and so on.
Fair enough.
Let’s say you do ask your prospective financial advisor whether they offer this list of services — who is to say that these are the right solutions to your needs?
The reason I have a problem with people asking, “What type of services do you offer?” is because most people don’t know the services they need.
I’m not saying they are unaware of an area where they need help, but they don’t know the solution! That’s why they’re speaking to an advisor in the first place.
It would be better for a client to explain their situation, like, “I just got a ton of options from my company, what do I do with that?” rather than wonder if and how the phrase “Executive Compensation” applies to their situation.
Financial Advisor Question #4: “What Is Your Investment Strategy?”
Any good advisor will have a solid strategy they can explain on the fly in language you can understand.
Most advisors don’t actively manage their own portfolios given the popularity of mutual funds and other bundled products. Good luck finding an advisor who understands the investment strategy that is being implemented to design your portfolio.
At best, the “strategy” you’ll be presented with will be your “asset allocation” — basically what portion of your investments should be invested in various types of assets.
They’ll try to get you to complete a “risk profile” or tout the benefits of the “60/40 portfolio.” Go ahead and ask, but it won’t help you determine whether one advisor is better than the other.
We have written many books worth of blogs on the topic of investment strategy and portfolio allocation, and if you’re new to this blog you will soon discover what we believe about how people should be invested.
I don’t mean to offend anyone, but I really do have to ask, what portion of the population — inside and outside the financial services industry — has an interest in the mechanics of the investment strategy being implemented in their portfolio? And the capability to understand it?
This doesn’t mean that you shouldn’t ask the advisor about their investment strategy. You MUST ask, if only to discover that your advisor doesn’t have a clue. If they don’t, that’s a clear signal to move on. Or if they claim they do, but you can’t understand it, that’s another signal to move on.
But to hold yourself responsible for assessing whether one advisor’s strategy is “better” than another’s — that’s not your job.
This is why this question really doesn’t help all that much in determining whether a particular advisor is right for you.
Financial Advisor Question #5: “What Types of Clients Do You Typically Work With?”
You may have been told to find an advisor who works with lots of people who share your characteristics: “kids heading to college,” or “near retirement,” or “business owners,” or whatever the case may be, perhaps it’s “people with a minimum of $500,000 in investment assets.”
How does this question even help?
How does knowing what kind of people I typically work with help you decide if I’m the person you want to work with?
If you ask me what types of clients I typically work with, I’ll tell you, it’s simple. I work with people who take our advice, because it is OUR advice. That's the kind of client we work with.
Coachability is paramount.
It doesn’t matter where you live, what car you drive, how much you’re worth. Because if you’re not going to follow my guidance, then you won’t be a client for long, and it won’t matter whether you’re approaching retirement, looking to sell your business, or to send your kids to college.
What Questions SHOULD You Be Asking if You’re Looking to Hire a Financial Advisor?
Finally!
As you can see, none of the questions above are that helpful in choosing between one advisor and another.
I think the best advice to give a prospective client who’s shopping for a financial advisor is to say what one of my best clients asked me, “I really don’t know what to ask,” he said. “This isn’t my forte,” he added, “…what questions do you have for me?” Keep in mind it takes a particular kind of person to admit that they “really don’t know what to ask.
What questions did I have for him? This was the best question of all!
And then, he sat patiently, answering my questions. He listened carefully, using my questions — not my answers — to guide his decision-making. I listened carefully to him, as I considered whether he would be a good fit for us. We were off to a strong start.
Contrast that with an advisor who may answer all the questions you dig up on the internet, but at the end of it you are no wiser for having asked them.
Or the advisor who uses the first hour and a half of your meeting to ask you about your finances but doesn’t know a thing about you and your family, your dreams and hopes.
As a prospective client, you must pay careful attention to how the advisor presents. Where is the advisor’s focus? Is it on you? Or is it on your money? Is it on your family? Your passions? Your future?
Is this someone who’s trying to impress you or is it someone who’s willing to take the time to really hear what you have to say? You’ll need to trust yourself in making this decision. Don’t get distracted by asking questions that ultimately don’t result in the outcome you want.
When people ask me about our investment strategy, or the services we provide, I tell them we will get there and I will be happy to answer their questions, but it will always be in the context of what I understand about their situation and what they need.
Choose the advisor whose focus is on you, and only you.
If you’re ready to take the next step to financial freedom, schedule a Discovery Call today!
Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.