Financial news and advice are everywhere: CNBC, The Wall Street Journal, Barron’s magazine, your brother-in-law, or this article. There is no end to the places we can go to find opinions on what to do with our money. What advice or recommendations should you trust?
It is possible that our country has a retirement/savings problem because we are making it too complicated.
Unfortunately, I can’t offer a perfect solution or silver bullet, but I can advise you on how to talk with your financial advisor. Or more succinctly, what to ask them so you can better understand the help they provide. Below are five questions everyone should ask their advisor:
1. How do you get compensated? This question should be on your list regarding any conflict of interest this advisor may have. Are they earning a fee on your account or a commission by advising your money? Your hard-earned money will need to grow and last a lifetime. You deserve to understand how your advisor is getting paid. This is not a rude or challenging question. Your advisor should bring it up during the initial meeting.
2. What is your money management process? Does this advisor create custom portfolios, or do they have one model upon which all client assets are placed? There is no right or wrong answer, but asking the question will reveal much about how the firm builds your portfolio.
3. What services are included when working with you? Some advisors specialize in investment management. Others are full-service planners, meaning they will develop a financial plan that provides tax, college, estate planning, and investment management. Your age and stage of life will help determine which type of advisor is more appropriate for you.
4. What is your experience and/or succession plan? In our business, we are heavily regulated by either FINRA or the SEC. You can look up an advisor’s history in two areas: www.brokercheck.finra.org or www.adviserinfo.sec.gov. Either of these sites will allow you to see if there are any customer disputes with the broker. What happens if the advisor you are working with leaves the business sometime later due to retirement or health issues? Do they have a succession or contingency plan for their clients? Knowing who would step in to help you achieve your goals might be good.
5. What kind of interaction will we have going forward? After you develop a “plan of action”, how will the plan be monitored? Do you want the advisor to contact you with every investment modification? Do you want them to take care of it? Again, there is no right or wrong answer, but finding a good fit with your personality is essential.
A question not listed, but one that I receive frequently is “What am I not asking, that I should know about”? This will allow your broker/advisor to share any forgotten or overlooked advice.
As you may have noticed, there are no recommended questions regarding account performance. Why? Performance is directly related to the amount of risk you are willing to take. Typically, the greater the risk, the greater the return. A good financial advisor is a problem solver. Whether you are just starting your first job, saving for retirement, or planning your estate, find someone you feel comfortable talking with and someone you can develop a trusting relationship with. Trust is the most significant component of a successful working relationship.
With this trust, you can take the complexity out of the financial markets.