Broker Check

10 Questions You Should Ask Your Advisor

| July 27, 2018
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Let’s be real here for a sec…

Not every physician (or anyone else for that matter) needs or wants a financial advisor.

However, if you are sitting here reading this and you don’t enjoy spending time building your portfolio or are scared of making mistakes or if you simply want a professional that you can lean on and bounce ideas off, a financial advisor could be a great fit for you,

Making a decision of working with a financial advisor is an important one and is not a decision that one should take lightly.

Some folks find that they are better off managing investments themselves, but most folks find that they enjoy working with a financial professional that is competent, honest, and ethical.

However, there are some pointed questions you need to ask and some research you can do ahead of time that will assist you in determining the quality of your advisor, prospective advisor’s character, and the companies that they may be associated with.

3 Questions You Need To Ask About Their Company

Question# 1: Are you an independent financial advisory firm or are they under the umbrella of an investment bank or insurance company?

Question# 2: What conflicts of interest might you have for giving advice on specific securities?

Question# 3: Does your investment bank or insurance company give you higher compensation (or lower costs) for selling their proprietary mutual funds or insurance products?

Your “buyer beware” radar should immediately go up if you get recommendations to put your entire portfolio into one product or one fund family.

4 Questions You Need To Ask About Who They Work With

Next, get a feel for the clients that they work with.  Consider asking them questions like….

Question# 4: Tell me about your typical client relationship. What is your “ideal client”?

BONUS Question: Are they familiar with residents & fellows? Ask them about the difference between PSLF, IBR, & PAYE.

Question# 5: How many clients do you have? How many would you like to serve?

Question# 6: What is the average portfolio size of a client?  

Question# 7: How often do you meet with your clients?

BONUS Question: How can I do the backdoor Roth?

I find that I cannot be all things to all people, but all things to some people to maintain a certain level of service. As such, I and most of my colleagues have account minimums in order to continue to take great care of the clients that we have plus to service new ones.

You should ask them for a list of 2 or 3 references of current clients that they are working with and see if the clients’ experiences line up with what they had answered.

Then, do some research on their background. Ask them if they have ever had any client complaints. Just like you can pull a CarFax on a used car to see what accidents it may have been in, you can pull a report on a financial advisor by going to http://www.finra.org/BrokerCheck/

We are an incredibly highly regulated profession and as such, on this report, you’ll see that financial advisors have to report past criminal records, past bankruptcies, their employment history, and if they have had any client complaints.

However, keep in mind that it is not unusual for many who have been in the business for 20 years to have a complaint or two. Ask them what they’ve learned from previous poor client experiences.

Still, all things being equal, an unblemished record is definitely what you want to have your financial advisor.

3 Questions You Need To Ask About How They Get Paid

Next, ask about compensation.

Question# 8: Do they get paid on commission, assets under management, or hourly/flat-fee (or some combination)?

The commission is transaction-based. Some advisors call this “getting paid directly from the company”. They get a one-time fee for selling the investment.

I’m not a fan because the incentive is to ‘churn & burn’. A commission model can work well with a buy-and-hold strategy where you hold the investment for 7+ years.

Some common examples of commission products (not that I endorse them) include load-mutual funds and annuities.

Meanwhile, assets under management are compensation of some percentage based on the assets the advisor is managing. The fee typically ranges from 0.5% to 2.0% depending upon the number of assets. Most advisors lower the fee as the account size gets larger. The advisor gets paid more as the accounts are going up and get paid less as the accounts are going down.

Lastly, hourly or flat-fee is just as it sounds. The advisor would be choosing to charge a nominal amount depending upon the amount of work involved in servicing their clients. The amount could vary greatly depending upon the advisor’s experience and their minimum fee. In this scenario, make sure to understand whether you would be managing the assets or the advisor would be.  

Question# 9: Do you charge separately for financial plans and other services?

Keep in mind that certain items such as financial plans and other planning tools may be wrapped in with assets under management tool or may be charged separately. Also, trade costs can vary widely from place to place.

Make sure you understand the fees and charges across the board and ask for full disclosure.

Question# 10: Are they trying to sell you a whole life insurance policy?

Bonus Questions

Treat this like an interview. After all, they are interviewing to be your advisor for hopefully years and years!

To better understand their personality, ask them about their strengths and weaknesses. What would their clients say is their greatest strength? Great weakness? What would their staff say is their greatest strength? Weakness?

If they say their weakness is that they are too detail oriented or care too much about their clients, they aren’t being real.

Keep digging or alternatively, run the other direction!

Gauge them by how they treat their staff and don’t hesitate to ask the same questions of the staff. Consider how they say it and how the answers line up.

What do they do to bolster their weaknesses? Who are the people around them that are strong in the areas that they are weak?

Final Thoughts

In over 10 years of being in the financial advisory business, I’ve found that trust is the key to successful relationships with clients. This is exemplified through consistent communication, honesty, and putting the client’s needs ahead of your own.

Unfortunately, as a client or a potential client, this is something you may receive glimpses of before becoming a client but cannot know for certain.

At some point, it takes a leap of faith and belief in a person that they will show you these qualities over time.

There are good ones out there- I promise.

Walter Jon Williams once said, “If you can find collaborators whose strengths complement your own, the result can be more than the sum of its authors.”

Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.

The views expressed are those of the author and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation

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