Last week we talked about How To Choose A Financial Planner. Following that topic, today we're here to give you some questions that you can ask your financial advisor!
When speaking to a financial advisor, you'll want to do your due diligence in asking them questions to make sure they're qualified to manage your money and fit your needs. Just like you wouldn't go to your doctors appointment without researching and creating a list of questions to advocate for yourself, it's just as important to do the same with your financial advisor!
1. What should I expect in the first session?
What you can expect at your first session will depend on the advisor. But in general, you can expect to share more about yourself and your goals, learn about the advisor, and start thinking about what your financial future could look like.
Here at Untangle Money, your first session, as part of our Master Plan or 1-on-1 coaching that we offer, will always include a level set of your current situation, analysis of your current budget, as well as the amount you need to save for retirement, and the opportunity for both sides to share a little more about themselves.
2. What are your qualifications/credentials? Are you a fiduciary?
Financial professionals may have a confusing list of initials behind their names so it's important to ask them about their credentials. You should work with an advisor who has some sort of financial planning or investment-related credentials. Such as Certified Financial Planners (CFP) and the Chartered Financial Analysts (CFA).
Sisterly advice: Many advisors who work at bank branches are called advisors, but it would be more appropriate to call them salespeople.
You should also ask if your financial advisor is a fiduciary. CFPs are fiduciaries.
What your advisor says will provide you with an indication of the quality of the advice you will receive. A fiduciary works in the best interest of their clients. An advisor who is not a fiduciary may get higher commissions for selling a product to you that is "suitable" but costs you more than a similar option.
Remember: Fees are one of the biggest predictors of how well you can build your money. That's because when you lose money, you still pay the fee. The fee also impacts your ability to compound your money - the greatest generator of wealth over time.
At Untangle Money, we don't sell you any other products, so our plans are always free from conflict of interest.
3. What is my total cost to work with you and how are you compensated?
In addition to paying the advisor, you will likely pay other fees — you'll want to know what they are.
Financial advisors can use a variety of fee structures. Financial advisers acting as fiduciaries typically only accept fees paid by clients (ie. they’re not getting kickbacks for selling you a certain product -- often a high-fee mutual fund). Advisors working for banks, brokerage firms and insurance companies can receive payments from mutual fund companies, fees from clients and commissions. Advisors make a lot of money selling you insurance so be on the lookout (what they get paid is often equivalent to the first year-and-a-half of fees you pay in insurance premiums). So, to keep it simple and avoid any conflicts of interest, look for fiduciary and fee-only advisors. They don’t get commissions for selling products.
Sisterly Advice: Canada has done a really poor job safeguarding investors and making fees transparent. So it’s important to educate yourself. We also pay some of the highest fees for mutual funds of any country in the world (between that, banking fees and cell phone costs, we are really lining the pockets of our oligopolies). Regardless of who you use, you should also understand what other fees you’re paying.
We’ll get into fees later but here are the names of some fees that you can ask about:
MER (Management Expense Ratio)
TER (in Canada: Trading Expense Ratio, in the US: Total Expense Ratio which is the equivalent of MER+TER in Canada).
MERs and TERs describe the fee associated with the investment product you purchase
Investment Management Fees or Investment Advisory Fees -- these are what you pay the firm who holds your investments
Transaction Fees -- charges for each purchase and sale you make (not all firms charge these)
Front-End Load (often Class A and Class B)/Commission Charges or Back-End Load/ Surrender Charge
Sisterly Advice -- run away quickly from anyone trying to sell you these products. There is no need for these products today, and their fees are completely out of step with reality (often 3-5% for no proven gain in performance).
Account Fee or Custodian Fee -- both from the brokerage (the place holding your assets), and sometimes the mutual fund (or the investment product you’ve purchased), may charge these fees.
4. What experience do you have to navigate the complex world of financial planning?
You'll want to know how long they've been working and what kind of experience they have. Keep in mind, experience is more than just the number of years that they've working in the profession.
5. What type of clients do you work with and who do you specialize in working with?
You'll want to ask the financial advisor what type of clients they specialize in working with to make sure their experience fits your needs and demographic.
Advisors may work with specific professions, employees of a major company, or even certain age groups, like millennials or baby boomers, even divorcees. Some advisors may have more experience working with me or more experience working with women. It's crucial to your financial well-being that your financial advisor has the right expertise to help with your specific situation. It's also comforting to know they've helped other clients with similar needs successfully.
Sisterly Advice: Studies show that women who work with female advisors are even more likely to reach their retirement goals. However, what's most important is to find someone with whom you feel comfortable asking questions, and who takes the time to answer your questions in a way you understand.
6. How will our relationship work?
You want to know how often you'll be able to meet with your advisor and whether they will be available to you for phone calls or emails outside of scheduled appointments.
7. Can I see a list of all the services you provide?
The reason you should ask this question is to understand if their services are focused in one area -- for example, investment management. Typically services might include general financial planning and investment management; however, you may have needs that go beyond the basics.
It shouldn't be a problem for an advisor to provide you a list of the services that they provide. If their answer is vague or confusing, that might be a red flag.
8. What's your approach to investing?
Investments may be one aspect of financial planning, but it's important that you and your financial advisor have the same investment philosophy. The financial advisor you work with should have an investment plan for your money that you understand and believe.
9. Is my investment portfolio properly allocated? What asset allocation will you use?
It's important to be diversified and your asset allocation is how you can created a diversified portfolio. Some examples include having your money in high yield savings accounts, and investing in the stock market (i.e. ETFs, bonds, stocks), etc.
10. How long will our relationship last?
The answer is as long as things are working for you. You can work with your advisor more closely at the beginning to develop a financial plan, and then schedule touchpoints to suit your needs and stay accountable to your goals thereafter.
But in reality, this relationship is to help you, so there is no right answer for the length of the relationship other than what feels right for you.
If the idea of interviewing an advisor makes you nervous, just remember that they also know it's important to do these sorts of interviews. Think of it as a relationship you're building with someone -- because that's exactly what it is. And like any relationship, you need, and deserve, transparency! More importantly, don't forget that you're paying for someone to clarify and help your financial life, not make it more confusing. If a financial advisor makes you feel incompetent or belittled, walk away!
Untangle Money's mission is to help women understand and alleviate the financial issues women face in order to successfully set themselves up financially. We all love being strong, independent women, and financial independence is a HUGE part of that! You can purchase our MINI, get a financial health check-up, and see how investing can make a difference for your future, and check out our other products and plans!
At Untangle Money we help women understand their (real!) financial picture, and obtain financial guidance from people that actually, really, get it. We would love to help you, too. Join the community of hundreds of other women looking to strengthen their financial well-being. Get in touch here for a free consultation!