It’s interesting that no one really teaches how to hire a financial advisor. And it’s odd how investors often totally and completely trust someone with their money without asking the right questions before hiring them.
Financial advisors are frequently hired from word of mouth referrals.
But why does the person making the referral recommend the advisor? Is it because of the investment performance the advisor delivered when measured correctly?
Did this person know that there is a way to measure the returns that the advisor got for her? Did she measure the performance before recommending the financial advisor?
Unfortunately, as famous past Fidelity Investments mutual fund manager Peter Lynch pointed out decades ago in One Up on Wall Street, many people ask more questions about a new appliance they’re considering than they do about their investments.
But managing your investments equates to financial security and quality of life. This is super important stuff that deserves your time and attention.
And you know deep down you need to be asking the right questions, but it can also be pretty intimidating and overwhelming not knowing what to ask in the big (and sometimes emotion related) world of finance. Right? I get it; been there and done that.
During the 30 years that I’ve invested money, I developed a questionnaire that I use when I am considering a money manager or investment advisor for one of my accounts. I just print it out and fill it in as I ask questions. (You can get that list for free here.)
This makes it easy to compare and find the best returns and service, since numbers aren’t complicated by other more personal factors.
Be aware that there are many types of advisors that work in very different ways, so you wouldn’t necessarily ask all the same questions across the board.
Some financial advisors are more big picture overall wealth management or planners, while others specialize in only the stock market, or the bond market, or a particular strategy. Others are more insurance focused. You’ll want to understand this, so I’ve included a couple of questions below around this topic.
In this article, I’ll share a just few of my favorite questions and insights for how to hire a financial advisor.
1. Schedule a phone call, or just blindly call. Late in the day tends to be the best time to catch an advisor. I find that most are glad to speak with you. You can usually ask questions over the phone initially so as to not waste anyone’s time, as the very first question can rule out a lot of money managers. It’s…
2. What is the account minimum required to work with you? If an advisor only works with clients with a minimum account of $ 1,000,000 and you are looking to invest $200,000, then you can move on to your next potential advisor.
3. Do you offer any services other than investing? Other areas of focus may include personal finance, cash flow management, real estate, tax guidance, or insurance. Again, this question will quickly let you know if the advisor specializes in what you need right now.
4. Are you affiliated with any company? If so, what type of company? What is your relationship? Do you tend to use their products mostly for your client’s accounts?
5. What is the primary function, or what is the primary account type or service? Examples are wrap account, private money manager, financial planner, independent financial advisor or insurance specialist? Understand the basic structure of the service and the accounts the advisor manages, and make sure this is what you want. (This question is related to question 3.)
6. What would be the total fees and who gets them? Pretty simple, yet I work with women who are uncomfortable asking this question. It’s unlikely you’d hire someone in your business or home and not discuss pay. Why would a money management service be any different?
7. What type of investments would you put me in right now and why? Ask if this particular strategy has changed in the past year or two and discuss how and why. You’ll want someone who is proactively seeks opportunities and minimizes risk with your investment account.
Remember, I’m not a financial advisor; I chose a different path, as a money coach. I’m just a bit of an analysis nerd with a financial background that has been investing for over 30 years now. As always, I do not give financial advice, only insights and education to empower you.
Before you speak with an advisor, be sure to do some research so that you understand the answers that you get and can converse confidently about these topics.
And remember, no one cares about your money more than you do. Having a rich life goes way beyond knowing how to hire a financial advisor. It involves having healthy money habits, positive cash flow with multiple income streams, and living well.
Want some help interpreting these questions? Go to https://financialwoman.com/financial-interpreter-consulting-program.