Expert Advice: What to Ask when Hiring a Financial Advisor

Entrusting your hard-earned assets to a financial advisor may always be in part an act of faith. But doing so blindly—as Bernie Madoff’s clients will attest—can have disastrous consequences. With more than 650,000 registered advisors in the U.S. alone, avoiding the crooks, the incompetents or even just the mediocre takes serious research. Finding an advisor who provides the unbiased advice you need requires a significant investment of time, some introspection and a willingness to ask tough questions. Advisors who are serious about your business won’t hesitate to provide complete answers—in writing.

What to Ask Yourself …

1. What level of financial and investment advice do I need? Am I looking for investment ideas alone—or sophisticated financial planning services that might include wealth forecasting, estate planning or creating a charitable trust?

2. What kind of relationship am I seeking? Am I comfortable delegating discretionary authority so that an advisor can manage my money directly, or would I prefer to retain ultimate control of trading decisions?

3. What type and frequency of communications with my advisor do I need to be comfortable? Am I content to speak with somebody by phone, or would I prefer regular face-to-face meetings with my primary advisor to review overall progress?

 

What to Ask Potential Advisors …

1. Are you a broker or a registered investment advisor or both? When managing my account(s), are you required by law to put my interests first? If so, will you acknowledge your fiduciary duty to me in writing? If not, how will you acknowledge your conflicts of interest when providing
me with investment recommendations?

2. How are you and your staff paid to advise me— fees, commissions, or both? How, if at all, do money managers or other service providers compensate you for any products you might recommend to me?

3. What is your investment philosophy? How is it different from other firms or advisors?

4. What is your past performance? What are the drivers of this performance?

5. What benchmarks will we use to evaluate the performance of my accounts? What other qualitative and quantitative measures will we employ to review the quality of your advice?

6. How many clients do you work with and what level of attention can I expect? How often will we meet to review my accounts? How frequently will I receive written reports on my portfolio?

7. What is your educational background? What professional designations, if any, do you hold and what do they mean?
 
8. How many years of financial experience do you have and how long have you worked as a financial advisor?

9. Describe your typical client. Please provide me with three current clients whom I may contact for a reference.

10. Do you keep your clients’ assets at a reputable independent custodian? Does an independent, licensed, brand-name accounting firm audit your financial statements? Whom may I contact at these institutions to verify your relationship?

11. Have you ever been sued by a client? If so, what was the outcome?

12. Have you ever been disciplined by an industry or government regulator? If so, why? If you are an investment advisor, can you provide Parts 1 and 2 of your Form ADV*?

 

Asking tough questions like these isn’t easy. But even if you plan to delegate complete authority to a financial advisor, you can never abdicate responsibility for ensuring that the relationship remains productive. Schedule quarterly checkins with your advisor—and be willing to make changes as circumstances warrant.
After all, it’s your money.

 

*Investment advisors must file Form ADV with the U.S. Securities & Exchange Commission and/or state securities regulators. Part 1 includes information about an advisor's education, business and disciplinary history within the last 10 years and is available online at adviserinfo.sec.gov. Part 2 details information on services, fees and investment strategies, and should be obtained directly from any advisor with whom you are considering working.

Curator