Thinking of hiring a Financial Advisor or looking to evaluate your current relationship? Here are 4 Questions you should ask NOW:

1: Are You A Fiduciary?

Asking an advisor if they are a Fiduciary will give you insight on if they allow any conflicts of interest to interfere with the advice you are getting. The Fiduciary standard will have your interests first as compared to the “know your client/best interest model” of a non-Fiduciary. In a “best interest” model you simply have to receive advice and investment recommendations that are appropriate for you but not necessarily best pricing, liquidity, etc.

2: Does my financial planning use average returns or sequence of returns?

First: if investment recommendations are being given without a full financial plan being drawn up it is the equivalent of a doctor recommending surgery without any tests. Financial plans are the thorough testing of the financial world that needs to be done before our version of a “prescription” or “treatment plan” in the form of investment recommendations can be made. The reason it is important to know if an average return is being used rather than sequence of returns is due to the quality of the output. You can see in our previous writings 3 Risks every Pre & Post-retiree should know about NOW and The top 6 Things You Forgot to Consider While Planning for Retirement that sequence of returns reflects the markets ups and downs while we are actively taking money from the accounts. This can mean that even with the same “average” a portfolio may run out of money with the peaks and valleys of the markets. Unfortunately planning with an ‘average’ return is a standard return year over year without a single instance of market volatility and therefore is highly unrealistic.

3: How do you get paid?

This may feel odd to ask, and possibly may be something you feel is intrusive however it is a natural, normal question that shouldn’t offend anyone. More importantly, it should be something that your professional takes the time to take you through so that you understand with them how they are paid. After all, it is both your trust and your money on the line. The least we can do as professionals is show the care and respect to discuss the value we bring as professionals and how we are paid for doing so.

4: Are there any conflicts in how you get paid?

Some of this will be answered in your previous question assuming that you’ve been granted that time to have your current or perspective advisor walk you through how they get paid. Important reasons for this are identifying if there is enough differentiation between one solution v another besides how they get paid for their recommendations to lean one way or another. This is also where the Fiduciary approach will not leave room for such an approach. Once again, this is something that should be a welcomed conversation and an advisor’s chance to show you the value they will bring to your financial health.

Looking for More?



Comments are closed