Are you in good hands with your financial advisor?

So, you’ve hired a financial advisor and have entrusted your life savings with her? Good luck.

When you’re engaging expertise you don’t have — e.g., surgeon, car mechanic, plumber, attorney — it’s always difficult to assess competency and trustworthiness. Financial advisors are no different except the stakes are probably higher.

Don’t be reticent to ask questions such as these:

1. Fees?

  • Is it a fixed amount per year, an asset under management “(“AUM”) percentage, or some other arrangement?
  • Is there a published fee schedule?
  • Is the same fee paid on all assets, including cash?
  • Is the fee negotiable?
  • Are there additional fees such as investment sub-advisors, mutual fund expenses, sales loads, etc.?

2. Included services?

Are financial planning services such as retirement projections, tax preparation, analyses for annuities, mortgages, and Roth conversions, budgeting, and financing college included or are there additional fees for that work?

3. Investment strategy?

  • Do they use low-cost index funds, actively-managed funds, and/or active stock trading?
  • Is a sub-advisor used to do the investing? If so, why, who, and is there another fee?
  • What tax minimization strategies are used?
  • What is the philosophy toward alternative investments such as crypto, real estate, commodities, metals, private equity, etc.?

4. Performance?

  • What value do they deliver (i.e., “alpha”) beyond what you can get from a low-cost index fund?
  • What benchmarks are used to assess performance and over what time period?
  • Is the reported performance net of all fees?

5. Fiduciary?

  • Is the advisor acting as a fiduciary and if not, why not?
  • If so, is that in writing?

6. Expertise?

  • Has your advisor achieved a CFP (certified financial planner) designation?
  • If not, why not?

7. Conflicts of interest?

If they occur, how are they communicated and resolved with clients?

8. Disciplinary proceedings?

If so, what were the circumstances of any firm or advisor inquiries from regulatory authorities?

Are these awkward questions? Sure, but it would be more awkward to entrust your life savings with someone and not know the answers. Be skeptical and wary but when you receive satisfactory answers, have confidence that you’re in good hands with your chosen advisor.

Do you need a second opinion or help decoding the answers to these questions? Get in touch to learn about my Financial Advisor Assessment service.

Questions?  Get in touch

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