By Sarah Johnson CFP®, MS, RD
There is no doubt that having a good financial advisor keeps us on track and more likely to reach our financial goals. However, these days finding the right one who puts your interest first can be difficult.
Here are the top 5 questions you need to ask when interviewing potential advisors.
1.) Are you a fiduciary? While we would love to think that all people working in the financial world are legally required to act in their client’s best interest, this is not the case. Non-fiduciaries are only required to recommend products that are “suitable”- even if they come with a higher price tag for you. This is why you must find an advisor who is legally obligated to always act in YOUR BEST INTEREST. Above all else, this is the most important question to ask potential advisors.
2.) How do you get paid? Going along with question #1, try to find a fee-only advisor (those particular words: fee-only. Do not be tricked by fee-based- this is not the same thing). Fee only means they will not be making commissions on anything they sell you, which decreases the potential for conflict of interest. Fee only advisors may charge a percentage of the assets they manage for you (1% is common), a flat fee, or an hourly fee. In short- they do better when you do better, and that is a relationship you want.
3.) What are my TOTAL costs? What you are paying should always be very clear and transparent. Fees should never come as a surprise. There will likely be some fees on top of what you pay your advisor, and it is crucial you know what those are. Ask if they will be placing you in ETFs (exchange traded funds), or mutual funds, and if mutual funds, ask what their fees are. Even so called “free” robo advising can have hidden costs to the client.
4.) Do you personally invest in what you recommend to your clients? Does the advisor put their money where their mouth is? Do they believe in what they recommend enough to invest their own money that way? If not- find out why?
5.) Are you independent from the products that you recommend? An independent advisor does not sell in-house products (sometimes referred to as proprietary funds). Instead, they will choose your products based not on what is being pushed from overhead, but rather what is in your best interest, matching your needs and risk profile.