Committing to work with a financial advisor can be scary.
Meeting with an advisor for the first time can be even scarier.
It's a sad reality and unfortunately the financial industry hasn't done the best job in making financial advising approachable. You should be welcomed with open arms when you choose to meet with an advisor, not feel like you’re being talked down to and treated like a number.
Here are 5 questions to ask your potential advisor to get comfortable with them and make sure they’re the right fit for you.
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How do you get paid?
This question is important because there's people in the finance industry that claim they're "financial advisors" when in reality, they're salesman in disguise who make money from pushing products that aren't always in your best interest.
An alternative to this question may be “Are you fee-only?”. Fee-only means that the only way a financial advisor is getting paid is through the fees that you pay them. No hidden commissions from selling certain investments or products.
It might be a good idea to do some research on different companies and see what they charge so have an idea of how you want to pay before you meet with an advisor.
Some ways that an advisor may charge for their services are:
Percentage of assets under management (1% industry average)
How often do you communicate with your clients?
Annual reviews are great, but what about everything in between?
The life of a millennial is filled with changes as we grow through our adult life. Life's unpredictable and it's important to have an advisor there to answer questions and work through problems as they come up.
Having a clear understanding of communication standards is crucial to a successful, ongoing relationship.
Are you a fiduciary?
The answer to this should be a quick "yes".
No matter how funny the word is, it’s important because being a fiduciary means that you must put the client's financial interests above your own. Unfortunately, not every advisor is a fiduciary meaning they may make recommendations that benefit them and not you.
What services do you provide?
First, think about what you are needing a financial planner for in the future, as well as right now. Some financial advisors might only manage investments, but you might be needing help with managing your cash flow and paying off debt.
Getting a clear understanding of what services they provide will help avoid headache down the road.
Why did your last client hire you?
You’re giving the advisor a chance to brag about himself/herself while still gaining some valuable insight at the same time. If the advisor says that someone hired them because he/she understood their student loan situation and you happen to be in that same situation, it makes sense to consider working with them.
Some advisors specialize in working with retirees and some advisors specialize in working with the younger generation. The reason this is important is because an advisor who works with retirees doesn’t see the same problems that millennials face day to day, so they won’t have the same knowledge and expertise as an advisor who does.
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These questions will help you get a better understanding of the advisor and how they work, but you still need to ask yourself a few key internal questions such as:
Do I like this person?
Can I see myself working with them long term?
Do they understand my situation?
Working with an advisor isn't a decision to take lightly. You're trusting this person with your financial future. I hope these questions help get you going in the right direction and provide confidence when meeting with your potential partner.
And you can meet with an advisor to get a better understanding of what they do and how they can help, but if it doesn't make sense for you - you may ultimately decide to do it yourself and that's okay.
There's no one right way to approach personal finance and financial planning.
There's only what's right for you and your situation.