February 2021
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Questions to Ask Before you Hire a Financial Advisor
Make sure you know what you're getting into

When you hire a financial advisor, you are putting your nest egg in their hands. But with so many financial advisors out there, it can be hard to know if you’ve picked the right person for the job. Below, you’ll find a few pointed questions you should ask that will help you determine whether you can trust them with your financial life and if they understand what you need as a client.

What are your credentials?

Susannah Snider, senior editor for Personal Finance at U.S. News, reports from her sources that just about anyone can call themselves a financial advisor even if they have virtually no training or experience. If you’re going to be trusting someone with your money, you’ll need more than that. Ask your potential advisor about their credentials, whether they are, for example, a certified public accountant or a certified financial planner.

“For most consumers, looking for an advisor who is a certified financial planner, or CFP, will help them locate a financial professional who has met certain educational, ethics and experience standards and has passed an exam,” Snider writes.

If you’re not sure what kind of advisor you need, check the Financial Industry Regulatory Authority’s database, which lists over 200 professional designations that fall under the category of financial advisor. It lists what the designations mean as well as the qualifications required, which should help you decide what to look for.

How do you get paid?

Financial advisors get paid in a variety of ways that can impact the decisions they make. “Understanding of how a financial advisor gets paid will help clear up whether they are working in your best interests or not,” says Charles Ho, certified financial planner and CEO of Legacy Builders Financial.

For example, an advisor paid via commissions for selling products is incentivized to sell those products whether they fit your needs or not. Confirm your advisor works for you and you alone by ensuring their payment is a flat fee, hourly rate, or percentage of your assets.

Are you a fiduciary all of the time?

There is only one right answer to this question: yes. According to financial reporter Casey Bond, “a fiduciary is a person who is legally and ethically required to act solely with your best interest in mind.” This requires them to disclose all of their fees, explain how they’re compensated, reveal potential conflicts of interest, and place your interests over their own — even if it causes them to make less money. Your financial advisor should always be held to a fiduciary standard.

Who is your typical client?

Many financial advisors have experience working with people in specific financial situations. Edward Wacks, a CPA and CFP, says that one of the ways to find an advisor who is familiar with your needs and understands your issues is to look for someone close to your own age. “Most advisors tend to focus on people within 10 years of their age,” he says.

What is your track record?

All investment advisors are required to file Form ADV with the Securities and Exchange Commission, and must update it annually. This form acts as a track record for the advisor that you can use to view their investment strategies and past disciplinary action, if any.

“Potential and current clients of an investment advisor should always review the Form ADV on file, as it provides transparent evidence of the asset mix within the firm, as well as the professional background of key personnel,” writes Adam Barone, financial reporter for Investopedia.

Check Form ADV before meeting with your potential advisor and ask them about anything you found noteworthy.

Finding the right financial advisor can be a major help to your financial life. Asking these five questions is a good starting point to get a sense of whether an advisor will be a good fit for you.



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Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.
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