- Are you a Fiduciary?
- A fiduciary works in the best interest of the client. Non-fiduciaries need only to recommend products that are “suitable” — even if they’re not the most ideal for you.
- How do you get paid?
- Advisors can use a variety of fee structures. To keep it simple and avoid conflicts of interest, focus on fee-only advisors. They don’t get commissions for selling products. Make sure it’s fee-only — those specific words. Fee-only advisors might charge a percentage of the assets they manage for you (1% is common), a flat fee for services or an hourly fee.
- What are my all-in costs?
- In addition to paying the advisor, you’ll face other fees — and you’ll want to know what they are. Fees can decimate your savings over time.
- What are your qualifications?
- Financial professionals can have a confusing list of initials behind their names. And whether a financial professional goes by “investment advisor” or has the CFP designation, it’s your job to vet them. The Financial Industry Regulatory Authority’s (FINRA) professional designations database will tell you what they mean, if there are any education requirements if anyone accredits the designation, whether there’s a published list of disciplinary actions, and if you can check professional status.
- You can also use a Form ADV to check an advisor’s record. You can get a free copy of Form ADV through the Investment Adviser Public Disclosure website at adviserinfo.sec.gov or go to brokercheck.org to look for disciplinary actions.
- How will our relationship work?
- Put another way: How much access will you have to the advisor? You want to know how often you’ll meet and whether she’s available for phone calls or emails outside of scheduled appointments.
- What’s your investment philosophy?
- It’s important to ensure you have the same investment philosophy. You have to believe in what she is doing, even when the going gets rough. Financial advisors really do their job when the market is down and they can convince you to stick to the long-range plan. What you don’t want to do is sell at the bottom of a market cycle.
- It’s also important to make sure you and your advisor align on investment style. For example, if impact investing is important to you, you may want to ask whether or not your advisor will be able to help you create a portfolio that aligns with your values.
- What asset allocation will you use?
- Asset allocation should be specific to you and consider such factors as time horizon, risk tolerance and total net worth. This is the most important decision you will make, and you will need to be comfortable with how much of your portfolio is invested in the stock market, regardless of whether the market is up or down. You’ve also heard it’s important to be diversified, because all assets don’t move in tandem and diversification will give you more consistency and less volatility. Your portfolio should include domestic and international stocks; small, mid and large-cap companies; and cover a variety of industries.
- Who is your custodian?
- Ideally, your financial advisor has hired an independent custodian to hold your investments rather than act as his or her own custodian — à la Bernie Madoff, the notorious financial advisor who defrauded clients through a multibillion-dollar Ponzi scheme. Using an independent custodian such as TD Ameritrade or Schwab will allow clients to go online at any time to see how much is in their account or view recent activity.
- What tax hit do I face if I invest with you?
- This helps ensure the advisor has your tax bill in mind when making financial decisions.
