Top 5 Tips for Hiring a Financial Advisor
Hiring a financial advisor is not a task to be taken lightly. You need to make sure whenever hiring someone to advise you about the management of your money that they are 100% honest and know exactly what they’re talking about.
It’s incredible how many people spend more time doing research before they hire a mechanic or carpenter than they do before hiring a financial advisor. Isn’t your financial future more important than your car? This article will help you do the due diligence required to make sure you hire the right financial advisor for you.
Top Five Questions To Ask When Hiring a Financial Advisor
1) What Makes You Qualified to Advise Me About My Money?
The financial industry is very poorly regulated. There are thousands of ‘financial advisors’ who hang up their shingles and get hired by unsuspecting consumers with no real qualifications. Some of these advisors sport a long string of letters behind their names for credibility. Remember when hiring a financial advisor that it’s not the number of letters behind their name, but which letters they have.
The most common designation for qualified financial advisors is a CFP, or Certified Financial Planner. They have a well established curriculum of study and complete required practical training before they can be licensed.
2) How Are You Paid?
Knowing how they are paid can also make a difference in your choice when hiring a financial advisor. Typically, financial advisors are paid in one of three ways.
- Fee Only
Of course they don’t all do it, but commission based financial advisors have a monetary incentive to advise you in ways that may be best for them. If you hire a fee only financial advisor, they are paid for the work they do directly and may have less conflict of interest.
Make sure you ask a lot of questions when hiring a fee-based financial advisor. This term was created when commissioned financial advisors were getting a bad rap and fee structures were becoming more popular. Fee-based usually means the financial advisor charges base fees AND charges commissions. It doesn’t mean you necessarily pay more when you hire this kind of financial advisor, but if you know they are paid on commission, you know what to look out for. Fe based financial advisors have a better chance of someone hiring them without realizing they are still on commission.
Any financial advisor you hire will have some biases, whether consciously or subconsciously. We all do. Just remember that, and know how they get paid before hiring a financial advisor
3) Are there any Hidden Fees?
It’s not just the financial advisor you hire that has to get paid. There may be transaction fees to cover fund managers, brokers, and other financial players. This can vary per transaction and differ with different investments. Ask your advisor about any other fees that may be charged. If you are hiring a financial advisor who is honest and upfront, they will have already disclosed this to you. It may not come up in the hiring interview, but later when your financial advisor is suggesting specific funds for investment.
4) Will You Be the One Writing My Plan?
When hiring a financial advisor, you may actually be hiring other firms or individuals to actually write your financial plan. When financial advisors outsource this work, it leaves more time to follow up with leads and try to convince new people to hire. More money under management is where the real profit for the financial advisor lies. If your advisor is outsourcing, they will be less familiar with your plan and it may take more time if you need to make quick changes.
The other issue is that when you did your research, it was on hiring the financial advisor in front of you, not someone else. The actual writer of your plan may not be qualified.
5) Will You Leave Me Hanging When Your Multi-Million Dollar Client Calls?
When someone with millions of dollars under management is hiring a financial advisor, they will make a whole lot more money than they do with an average client. It makes business sense for the financial advisor to focus on their most productive clients. If you and their Texas oil baron with $50,000,000.00 under management both need something done quickly, who will get their problem taken care of first?
When hiring a financial advisor, find out what their average client looks like. If you hire a financial advisor whose average client has ten times more assets under management than you do, chances are good that financial advisor will not have as much time for you as you’d like.
These are five of the most important questions to ask when hiring a financial advisor. A little research will come up with many more…but if you ask these five questions before hiring your financial advisor, you can prevent most of the risk.
Roderick MacKenzie is a Financial and Business Consultant at Business TM, and the author of the ebook “24 Secrets You Should know About Financial and Investment Advisors”.