By: Joseph A. Belfatto
Choosing the right financial advisor is one of the most important financial decisions you will make in your lifetime. This is especially true for high-net-worth families with complicated financial situations. So how do you know if you are choosing the right one? Almost all financial advisors will tell you that they are ethical, offer superior investment products, and that they ‘always put the client first.’
To help you separate the wheat from the chaff I put together the below list of financial advisor interview questions. If an advisor’s response isn’t in line with what I’ve outlined below, it could be a red flag, at the very least it’s a sign to keep digging for more information.
Q. Is your firm held to a fiduciary standard?
A . This answer should be unequivocally yes! As a fiduciary, a financial advisor or firm is legally required to make investment decisions that are in your best interest, not the firm’s best interest, and put your needs ahead of the firm’s.
Q. Is my financial advisor held to a fiduciary standard?
A. Ideally, the advisory firm and the financial advisor you’ll be working with will both be fiduciaries. Things can get tricky if one is and the other isn’t.
The simplest way to find out if your financial advisor has fiduciary responsibility is to ask whether the advisor has earned the Certified Financial PlannerTM/CFP® designation. All CFP®s are held to the fiduciary standard.
Q. What services do you provide to clients?
A. For example, does the advisor offer a holistic approach to financial planning and engage in a full wealth management relationship or just help manage an investment portfolio? In other words, is the advisor primarily a financial planner or an investment advisor?
Many advisors say they look at the big picture and other financial areas but in reality, they end up focusing only on investment management.
Q. How do you and your firm get paid?
A. In other words, what is the fee structure and how does the money flow? You want to keep an eye out for potential conflicts of interest that can arise if a financial advisor is compensated primarily through commissions earned on investment products recommended. To avoid this, choose a fee-only advisor who is held to a fiduciary standard.
Q. In what other ways are you and your firm compensated?
For example, do they sell insurance or make commissions on trading? Are they paid by managers they invest money with? Do they get paid by the mutual funds or ETFs they recommend? The answer to all of these questions should be no. Ideally, the financial advisor and firm should get paid in one way and one way only: by their clients – i.e. an advisory fee.
Q. How will the day-to-day relationship work?
A. For example, is one advisor doing the “pitch” but after you sign on, will you be passed off to someone else? Are there other points of contact you can lean on, if necessary, or is it a one-person show?
Also, how often will you meet with your financial advisor and how will these meetings be conducted — in person or by email, phone or videoconference?
Q. What is the time horizon for the advisor’s career?
A. Your financial needs don’t disappear when your financial advisor retires, so this is an important question to ask upfront. If the advisor is in the latter stages of his or her career, make sure a good succession plan is in place. Ideally, you’ll find an advisor and advisory team with a long runway that can work with you throughout your lifetime and eventually start working with others in your family as well.
Q. What does the rest of the firm look like?
A. There are many components to a full wealth management service offering, so it’s important that you choose a firm with a strong infrastructure. Making sure there is a firm foundation in place is critical to the long-term success of the relationship.
For example, how do they handle compliance with regulatory agencies? How do they trade and are they constantly improving technology? What kind of content do they send out and is there an educational component to the relationship?
Q. What is your financial planning approach?
A. There are many different components to a holistic financial plan. These include taxes, education planning, retirement planning (including Social Security and Medicare), estate planning, and insurance (including life, property and casualty, umbrella liability, long-term care and health insurance). How will the advisor manage the different teams and professionals needed to execute a plan successfully?
Q. What is your investment philosophy?
A. For example, is each client’s investment portfolio customized based on his or her goals and needs? Does the advisor pick individual stocks or build a diversified portfolio? Is the equity bucket active or passive? And how are investments benchmarked?
Also ask how asset allocation decisions are made because this will give you a sense of how the financial advisor thinks about portfolio construction. Finally, ask if the firm’s employees and partners invest in the funds the advisor recommends. This will tell you if they are “eating their own cooking.”
Q. How will you work with my significant other and/or the next generation?
A. While there might be one primary financial decision-maker in your family, it’s important for your advisor to include your significant other in financial discussions. The advisor should approach the needs of a couple cohesively. Also ask if the advisor will provide financial education and resources for your children if you have them.
Q. How do you work best with clients?
A. It’s important to understand what the ideal client looks like for the advisor, so ask him or her to describe this to you. Doing so will help you understand whether or not you fit this profile and are a good candidate for this particular advisor and firm.
A qualified financial advisor will be able to provide you with satisfactory answers to all of the questions listed above. At Simon Quick we are happy to address these questions, or any others that you may have when you are considering hiring an advisor. If you would like to speak to someone about potentially hiring Simon Quick for your wealth management needs, please call us at (973) 525-1000 or send an email to email@example.com.
About Joe Belfatto
Mr. Belfatto is a Managing Partner of Simon Quick and is responsible for client relationship management, marketing and new business development based in Morristown, NJ. He is a member of the firm’s Management Committee and also serves as the Senior Relationship Manager on a number of individual, endowment and foundation client accounts. Mr. Belfatto graduated from Seton Hall University summa cum laude with a major in Economics, and went on to Harvard Business School, graduating with a concentration in Marketing and Finance. He is currently a member of the Seton Hall University Advisory Committee. Previously he served on the Planning Board in Summit, NJ, the Board of Trustees of the Susan G. Komen for the Cure North Jersey Affiliate, Oak Knoll School of the Holy Child and the North Jersey Affiliate of the Juvenile Diabetes Foundation. To learn more about Joe, connect with him on LinkedIn.
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