Finding a good financial advisor is not easy, so today I plan to arm you with a handful of financial advisor interview questions that you should use when you are interviewing a financial advisor to handle your finances. I know this sounds a bit counter intuitive. Shouldn’t the financial advisor be selling ME on why I should hire them? Trust me, they will sell you, but you should never base a buying decision solely on a sales pitch. You wouldn’t buy a car just because a car salesman said it was the best would you? You would kick the tires, look under the hood and do your research. Same goes for choosing a financial advisor. The following financial advisor interview questions will help you weed through the financial advisor pool and find one that fits your specific needs.
Let’s Talk Education: Remember, you are interviewing them, not the other way around. What is the first thing that prospective employers look for in an employee? Education. It’s no different here. In general, financial advisors are sales people first and foremost. There are a chosen few however who spend more time educating themselves on the ways they can help build their clients’ wealth. This is the advisor for you. I prefer advisors with a Series 7 license, and at least a CFP®. CFP stands for certified financial planner and is the industry standard designation. It is not easy to pass and only the most dedicated financial planners will go through the rigors of passing this test. If you get really lucky and find an advisor with a CFA after their name, you may have hit the jackpot. Make sure that they have passed all three levels of the exam however, since some will erroneously add the designation after only one level has been passed. CFA stands for Certified Financial Analyst and is VERY difficult to pass. Don’t be bashful to ask where the advisor attended college. Ask about their major, did they learn the principals of economics or finance? You want somebody who knows finance better than you. That’s why you’re paying them. Find somebody with a solid footing in the financial world.
Tell Me About Your Firm: Most financial planners work for themselves, but are under the umbrella of a larger firm. Learn about that firm under which they work. Larger firms such as Morgan Stanley, Fidelity or Merrill Lynch provide instant credibility. Smaller firms may require that you do some independent research to confirm that the firm is reputable and has done business for an extended period of time. You want to make sure that there is a solid backing for the products that you will be sold. The last thing you want is for your brokerage account to be passed around from broker to broker as your advisor’s firm changes hands. Find a good solid financial advising company with a background that you trust.
Ask For Referrals: The power of another person detailing their experience with an advisor is gold. You will learn more about the financial advisor this way than through any other method. People are generally more than willing to share their experiences with vendors that they have used. In most cases you will get the names of satisfied customers (of course). So expect the good news, but ask for shortfalls. You want to know what the pain points are for that advisors current client base. Does he or she respond quickly to emails? Do they follow up often? Too Often? Too Seldom? Do they try to sell products in a pushy way? Do you know anybody else that they work with? Would you refer them to a family member or friend?
How Long Have You Been In Business: 10 years in the business should be your benchmark. Turnover in the financial advising world is EXTREMELY high in the first 5 years of work. An advisor who has been in the game for 10 years or more is most likely to be there for the next 10 years and onward. Not only will the odds of your advisor disappearing go down significantly, the odds that your advisor will have a strong knowledge base will increase. This is what you want. High levels of industry education may make up for a year or two of experience in some cases. Use your discretion here. I have written a lot about whether financial advisors are worth the money. It's an intersting read on the topic.
How Do You Get Paid: You will be footing the bill in this arrangement, but unlike other bills, the way that customers pay financial advisors is largely muddled. I didn’t know before I started in the business. There are three ways that financial advisors are paid:
Fee Only: These types of financial advisors work on a fee basis, much like a consultant. They typically charge an hourly rate for planning. The rate of course will depend on the complexity of your plan, but do not expect to pay less than $500 per year for an advisor who is compensated in this fashion.
Fee Based: These advisors are paid in a mixed fashion. They charge fees for planning services, but also earn commissions on product sales. It is a bit of a hot spot in the financial advising world today, as these type of advisors are seen as double dipping into the payout pool.
Commission Only: These advisors work solely on commission from products that they sell to you. This is the type of advisor that I was. It is a slippery slope here, since some products naturally pay higher commission than others. Be wary of anything that a commission only financial advisor sells you. For instance, Term life insurance policies are generally cheaper than Whole Life or Variable Universal Life policies. If a term policy is best for you, do not let them push you towards a more expense life insurance product!
In Review: Check out the educational background. CFP, CFA, Series 7. Research their firm, look for a reputable name in the industry. Ask for referrals, confirm their tenure in the business and confirm how they are compensated. Once you have gone through each of these financial advisor interview questions, you should be in fine shape to choose a quality financial planner for your needs. If you want to understand more about how Financial Advisors work, Scott West has a great book called Storyselling for Financial Advisors : How Top Producers Sell