Finding the right financial advisor: What questions to ask

These last few months have been interesting, to say the least. Markets fell faster than at any other point in history,1 and COVID-19 has been overwhelmingly present in everyday life.

For anyone focused on their financial future, it’s crucial to find a trustworthy and competent advisor to help you through such times. Unfortunately, many find that when they need a trusted advisor most, it’s hard to know where to begin or where to look for one.  

If this sounds familiar, or if it does not feel like your current financial advisor is providing the services you expect, perhaps it’s time for a good look on how to choose the right advisor for you. When reassessing your current advisor or vetting a new one, here are some questions that you should ask.

1. Are you held to the fiduciary standard?

Knowing the difference between the types of advisors out there will help you go down the right path for you.

Registered Investment Advisor: A registered investment advisor — also known as an independent, fee-only advisor or an RIA — is legally required to act as a fiduciary to their client. This means they are legally obligated to practice a standard of duty and care that places their customers’ interest ahead of their own and act in the customers’ best interest. A combination of investment management and financial planning services often provided by fee-only advisors can also help you with broader financial decisions (see question 5).

Retail broker-dealer: Recently the U.S. Securities and Exchange Commission, commonly known as the SEC, adopted a new Regulation Best Interest that becomes effective on June 30, 2020. Under this new regulation, retail broker-dealers will also be required to act in the client’s best interest, but they will not be held to a fiduciary standard, which means they are still allowed to recommend investment products that result in a higher compensation to the firm as long as they disclose these conflicts to the client.

Important: As required by Regulation Best Interest, no later than June 30, 2020, registered investment advisors and broker-dealers alike will be required to provide their customers with a Customer Relationship Summary (Form CRS) where they must describe to the customer, in plain English, what type of firm they are, what services they provide and how firms and their employees are compensated, among other things. Make sure you receive Form CRS from the firm you are evaluating and be certain to understand all disclosures in it and ask questions of the investment professional.

2. How do you get paid?

Whichever direction you choose, make sure to find out upfront about any onboarding fees, termination fees or account minimums.

Fee-only advisors are just that: Fee. Only. The fee is typically a stated percentage based on the value of assets they manage or advise for a client and generally is billed quarterly. A fee-only advisor typically does not receive compensation from any of the investments they recommend to a client. They also do not receive compensation from executing trades between investments. If they do receive these types of compensations, they are legally required to disclose them to you.

Broker-dealer firms, on the other hand, may receive commission-based compensation that is dependent on the purchase or sale of a financial product by the customer, or transactions executed within your account.

Regardless of the type of the firm, the description of compensation in Form CRS must be clear and transparent. If it is not, request an itemized breakdown of your all-in costs to get a full picture of what you will be paying.

3. Who will be working on my account?

Wondering if you should go with a team or solo-advisor route?

Having a great advisor is key, but a team-based approach can be beneficial in many ways.2 It all boils down to one thing: enhancing your experience as a client.

With a team, more resources are available, and you are able to communicate with everyone on the team, not just the lead advisor, should a time-sensitive need arise. It should also provide some solace in that you won’t need to start your search all over again as your advisor nears retirement themselves, because you already have an established relationship with another team member.

4. What do those letters behind your name mean?

We are an industry of acronyms, which, unfortunately, can create confusion for those outside.

Even though looking at a list of financial designations can be less than mentally stimulating, it’s important to know the credentials of the advisor who will be working on your investment account or financial plan. 

Different designations require vastly different amount of preparation, examination, experience hours and continuing-education (CE) requirements. For example, the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation is largely regarded as highly respected in the financial services universe, and it has study programs that can be a year long! Also, even after the exam is passed, a minimum experience requirement of 4,000 hours must be met prior to using the marks. Below are some designations to keep an eye out for:

Chartered Financial Consultant (ChFC)
Personal Financial Specialist (PFS)
Certified Public Accountant (CPA)
Certified Financial Analysist (CFA)

Ask questions of the investment professionals about their designations and make sure you understand them.

5. Why should I hire you, and what value do you add?

It’s a fair question, but it’s sometimes difficult to come right out and ask. A good financial advisor should be looking for ways to add value at every stage of your relationship and provide peace of mind, no matter what the market looks like. When the next market downturn happens (yes, “when,” not “if”) will your advisor be there for you to talk through your questions/concerns, or will you be greeted with radio silence?

While not necessarily applicable to every client, the value available should encompass the main areas of financial planning:

  1. Education/student loan planning
  2. Estate planning
  3. General financial planning
  4. Insurance planning
  5. Investment planning
  6. Retirement and cash flow planning
  7. Tax planning*

During periods of volatility, many opportunities present themselves, such as: strategically harvesting losses to minimize tax liability, rebalancing, Roth conversions, estate plan techniques, etc.

Are you receiving this level of service from your current advisor? If not, it may be time for a second opinion.

6. How do you approach investing?

Knowing your advisor’s approach to investing is imperative to a longstanding relationship, as they help guide your wealth, portfolio and financial plan. Some advisors take a very active approach, constantly trying to pick the next big winner. Others take an educative, tax-efficient, diversified and long-term approach.

7.  Why did you become a financial advisor?

This is a personal question, but it’s an important one to ask, because being a financial advisor is an extremely personal pursuit. Your advisor may come to know you better than anyone else, save for your spouse and physician. This is not something that should be taken lightly. Learning the personal history of your advisor could quickly show you whether they are the right fit for you.

Other considerations

If the firm is a fee-only registered investment advisor, it must maintain and deliver to its clients Form ADV Part 2A (often called the Customer Brochure). As discussed above, both fee-only advisors and broker-dealers will soon be required to deliver their Form CRS to you. Read these documents and make sure you understand the firm, its compensation structure and its conflicts of interest that exist between the firm and its customers. Additional Supplemental Brochures that many firms are also required to deliver include employees’ educational background and professional experience to give you a holistic picture of the firm.

Most importantly, make sure you feel comfortable before making a decision. If you have more questions, ask them. If you’re confused about something, like their investment approach or how they are compensated, request clarification. A good advisor will be happy to help and can provide you additional information and materials about their business.

Find your advisor

If you have questions about anything covered above, don’t hesitate to reach out.

Contact Wipfli Financial Advisors

* Wipfli Financial does not provide tax, accounting or legal services.
Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services and fees is set forth in Wipfli Financial’s current Form ADV Part 2A brochure, copies of which are available from Wipfli Financial upon request at no cost or at Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.

Finding the right financial advisor

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Finding the right financial advisor: What questions to ask

time to read: 7 min