As important as it is to understand the fundamentals of financial planning, the reality is most of us don’t have the time, knowledge and/or interest to create, implement, monitor and update a comprehensive financial plan.
Working with a qualified financial professional can help take the burden off of you to figure it all out. But financial professionals can differ dramatically—from their background and methodology to how they get paid and what products they offer.
If you choose to work with a financial professional, plan on interviewing at least three candidates to make sure you get the right fit. Here are 10 questions to ask:
What experience do you have?
Ask them to explain their work experience both in financial services and out, if applicable, and how it relates to their current practice. Certified Financial Planners™ (CFPs) must have a minimum of three years experience in the financial planning process.
What are your qualifications?
Ask them to explain what licenses they have and the training they have completed, and any designations they may have. Also ask about continuing education and how they stay current with changes and developments in the financial services industry. Every professional has a certain amount of continuing education “credits” they must complete at various intervals in order to maintain their licenses and certifications. Keep in mind that financial professionals generally cannot sell insurance or investments like mutual funds, stocks or bonds without proper licenses, or give investment advice unless registered with state or federal authorities.
What financial services do you offer?
Financial professionals can offer different services depending on their credentials, areas of expertise and interest, among other things. Some professionals only manage money and don’t do comprehensive planning, some do both, and some may focus on a particular area like wealth management, insurance or estate planning. Keep in mind that no one person can be an expert in every aspect of financial planning, so if a candidate tells you that he/she is, beware. Some professionals partner with other professionals who specialize in particular areas, which they should disclose up front.
What is your approach to working with clients?
Financial professionals should begin every client relationship with some kind of Q&A regarding the client’s particular goals and concerns, investment experience and risk tolerance (and the more thorough the better!). Some professionals meet with clients only once or twice a year, while others will make themselves available to clients at all times. Some prefer to meet with clients in person while others are comfortable communicating remotely. The important thing is to make sure you are comfortable with the proposed arrangement.
What is your approach to investing?
The professional's investing philosophy should make sense to you and seem suitable for your needs, and should not feel too cautious or overly aggressive. Find out how they will carry out their financial recommendations and whether they will invest and manage money for you or refer you to someone else who will.
What types of clients do you typically work with?
Keep in mind that some professionals prefer to work with certain types of clients (such as business owners, teachers, retirees, widows or divorcees) and often have something in common with them. Find out if and how the candidate relates to your specific situation. Also, some professionals will only work with clients whose investable assets fall within a particular range, such as $250,000 - $1million, or require you to have a certain net worth to work with you. So, it's important to make sure the professional is a good fit for your individual financial situation.
Will you be the only one working with me?
Some professionals work with their clients solo, and others use a team approach. You should know this upfront and have the chance to meet everyone you'll be working with before committing to anything. And if consultants such as insurance agents, estate attorneys, CPAs or bank lending representatives may be involved, you should get a list of their names and affiliations upfront to check on their backgrounds.
What do you charge and how will I pay for your services?
Although what you pay will depend on your particular needs, they should be able to provide you with a cost estimate based on the work to be performed. As part of your agreement, the financial professional should clearly state in writing how they will be paid for the services to be provided. Financial professionals can be paid in several ways:
A salary paid by the company for which the professional works. Their employer receives payment from you or others, either in fees or commissions, in order to pay the professional's salary.
Fees based on an hourly rate, a flat rate or a percentage of your assets.
Commissions paid by a third party for the products sold to you to carry out the financial planning recommendations. Commissions are usually a percentage of the amount you invest in a product.
Are there any potential conflicts of interest I should know about?
A professional may have some business relationships or partnerships that could benefit her/him monetarily and affect her/his judgement to act in your best interest. For example, financial advisors who sell insurance policies or mutual funds have a compensation arrangement with the companies that provide these financial products. Ask the professional to provide you with a description of potential conflicts of interest in writing. Professionals who are CFPs have agreed to abide by a strict code of professional conduct and have an ethical obligation to put your needs above their own.
Do you have a clean record?
Several government and professional regulatory organizations, such as the Financial Industry Regulatory Authority (FINRA), your state insurance and securities departments and CFP Board, keep records on the disciplinary history of financial planners and advisors. Any documented violations should be disclosed to you upfront, but you should also do your own homework, including checking their FINRA record at brokercheck.finra.org and Googling them.
It may seem like a lot of questions to ask. But if you’re going to invest your nest egg with someone, it’s worth investing the time and effort to make sure you choose the right person. Finding an advisor who understands your needs as well as your finances can do wonders for your peace of mind—and your portfolio.