When considering the impact personal finances have in one’s life, its hard to believe that many never consult financial professionals.
In a survey conducted by Harris Poll, 62% of respondents claimed to have no financial advisor of any kind. An astonishing number, since financial decisions are some of the biggest and most emotionally impactful decisions people will make in their lifetime. Just look at buying a house, a car, more farmland, or farming equipment. These are some of the biggest expenses that you’ll have.
If you have a financial advisor you’re already ahead of the game. But if you do not have one, here are some questions you should ask as you considering hiring an advisor. Asking these questions will help ensure that you are teaming up with an advisor that has your best interest in mind, and is focused on helping you achieve your goals.
Are you a fiduciary?
This is an extremely important question to ask because legal and regulatory standards across investment, insurance, and financial planning disciplines are not standard. Some advisors have a fiduciary duty and others do not.
Fiduciary duty is a term used by the courts to define an expectation for conduct to act in the best interest of the client regardless of circumstances.
If the advisor is fiduciary, the advisor places your interests ahead of their own. If the advisor has a fiduciary duty, it provides the client extra peace of mind knowing the advice they are receiving is held to the highest expectation.
There are a lot of advisors out there that practice multiple disciplines and may be fiduciary with one but not another. So, be careful and ask what their fiduciary obligation covers.
How do you make money?
If you asked the above question (which you should have) the financial advisors’ answer might have indicated how they get paid. There are a lot of ways that financial advisors can potentially get paid: hourly rate, commission, salary, fee-only, etc.
Commission based advisors provide advice and are compensated for that advice by selling you an investment or insurance product. The underlying investment or insurance company will pay them a commission for selling that product.
Salary advisors are most commonly employed by banks and other large financial institutions. They provide advice and their salary is justified by the amount of business you do with that institution (mortgage, investments, savings account, etc), a commission based product they sell you, or sometimes a pre-negotiated fee.
Hourly rate and fee-only advisors are hired by you to perform a particular scope of work, much like you would hire an accountant to file your taxes or lawyer to process your annual company registration.
What are my all-in costs of working with you?
This is an important question to ask to make sure you are aware of all fees disclosed and hidden. The last thing you want is a surprise at the end of the month with an extra fee when you’ve negotiated something else with your advisor.
If the advisor isn’t able to give a straight answer or gives some complex run-around formula, step back and have them pencil out all of the individual costs.
Having fee’s fully disclosed and agreed upon not only helps build mutual trust between client and advisor, it helps control costs.
Who is your ideal client?
All advisors should be able to tell your their ideal client profile and who they serve best. Fitting into your advisor’s ideal client profile gives you extra peace of mind knowing that they have the expertise and focus to provide you good value with their services.
You do not necessarily have to fit into the ideal client profile to become a client, but it will be a benefit to engage a financial advisor that specializes in situations like your own. An example would be advisors who work with young working-class families, professionals like doctors and lawyers, business owners, and advisors like ourselves who specialize in working with family farm clients.
At Forbes Wealth Management we have a document on our website that outlines in detail who our ideal client is. To see more detail click here.
What is your investment approach?
Since one of the main roles of a financial advisor is to help build and grow personal wealth, knowing their investment approach and strategy is critical. It’s important to know what they are investing in and how they go about doing it. Are they passive or active investors? (For our take click here) Are they high risk or low risk? What investment vehicles do they use?
The investment approach should be easy to understand and should align with your goals, timeline, and risk tolerance.
What services do you offer?
This is definitely something that your advisor should be discussing with you. Some offices offer a variety of services and some only offer one.
If you can find an advisor that can provide all the services and advice you require, it may be convenient to get all your financial advice in one place. It can save you time, cut costs, and sometimes increase the quality of advice you receive.
At Forbes Wealth Management we offer a variety of services. Check out our website for more information on those services https://www.forbeswealth.ca/our_services.html.
What licenses/experience do you have?
Many financial advisors are licensed to provide investments or insurance products, but in some cases, they may only be licensed to provide one or the other, or none at all.
When judging professionalism and depth of knowledge, we can look at academic achievements. In the financial planning industry, there are a couple professional designations that are worthwhile to mention.
The Certified Financial Planner (CFP) designation is a gold standard for financial planning advice in Canada. There are roughly 30,000 CFPs and the designation is well recognized.
The Registered Financial Planner (RFP) is another designation that is less common and of a more theoretical and academic nature. There are only about 300 RFPs in Canada. This small group of individuals is more focused on addressing the most complex financial planning issues like estate planning, business & corporate planning, and cross-border nuances.
Some advisors may have other designations, but those would be less directly related to the financial planning discipline.
How much contact will we have?
Circumstances are constantly changing, and what worked a year ago may be irrelevant today. It is important to have regular contact with your financial advisor.
Having regularly scheduled meetings keeps you informed on your financial standings, and what your advisor is doing. Additionally, regular meetings keep your advisor updated on your changing life circumstances so appropriate changes can be made.
In our office, we suggest meeting on an annual basis at a minimum.
What makes your client experience unique?
An advisor who has built a professional practice knows what value he or she brings to the table compared to their competition. It is important to know what experience your advisor intends to provide when working with you in order to understand if they’re worth what you’re paying them.
Could I see a sample of a financial plan?
There is no standard for financial plans. Every advisor will have a different style of plan with varying levels of complexity and comprehensiveness. Some advisors may provide a full written plan, others just a few projections, or maybe none whatsoever.
By asking to see a copy of what their financial plans look like, you can more fully understand what factors they take into account and the advice they will provide.
You can also ask for further clarification or additional points to address on your own financial plan.
If you don’t already have a financial advisor, it isn’t too late! Hopefully, these questions can serve as a starting point in understanding what you should look for and what you can expect.
If you already have a financial advisor and don’t know the answers to the above questions, ask them in your next meeting!
For more information on our firm visit our website here.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy.