A few years ago, I shared a story of a disastrous meeting with a financial advisor. This person did virtually everything they could to convince us to go elsewhere.
While I mostly want to control my own financial planning, I do have some needs that involve specific situations where a financial advisor would be very useful for me, so I’ve spent time in the ensuing years shopping around for one, with some success and some…. well, let’s just say I’ve figured out some people to avoid.
Over that time, I’ve really figured out how to weed out some of the less reputable financial advisors. I’ve found that if I meet one, there are five questions that really help me cut through the situation and give me some material to do some follow-up investigating on my own. I also walk out of the meeting asking myself one key question.
Here’s what I’m always asking. A point of advice: if you’re nervous about asking these kinds of questions, don’t be. These people are going to be managing a big part of your future and giving you advice that could have enormous life impact for you. You should not be afraid to ask them anything pertaining to their profession.
What areas do you specialize in?
You should ask this before giving much information at all about yourself and your situation to the advisor. Any advisor who responds with “everything” or anything close to that should set off warning bells.
Advisors generally specialize in certain areas. Usually, advisors tend to focus on people who are close to their age, for one, so you generally wouldn’t want an advisor drastically younger or older than yourself. Also, some advisors work better with people who have particular goals in mind, like charitable giving in retirement.
What are your potential conflicts of interest?
A financial advisor who says they have “none” is not telling you the full story.
Every financial advisor worth a dime has some sort of potential conflict of interest. A good one is honest with his or her potential conflicts and knows how to resolve them in a way that minimizes impact on his or her clients.
Thus, a good advisor will be able to tell you at least some of their conflicts of interest and should be able to easily describe how they handle them.
How are you compensated?
Be very wary of advisors who are primarily compensated by commission, as their primary income comes from selling you on particular investment packages.
Ideally, the person you’re working with receives no money at all from commissions. The greater the impact that commissions have on their income, the more attention they’re going to pay on how much they can make from commissions instead of how much they can make by giving you stellar advice.
What makes this investment/insurance better than other comparable investments/insurances?
Not only should they be able to explain the differences, they should be able to point out specific comparable investments for you to look at. They should also be able to tell you the sources of their information when you ask for it.
Naturally, before you commit money, you should take their sources and look up the information yourself, as there may be other comparisons they’re not telling you about.
If they’re just reiterating a sales pitch, they’ll stumble here and be unable to provide specific sources. That’s when you need to be wary.
What are your credentials? Are you registered with the SEC?
Whatever they tell you, do some research on it and find out what the credentials mean. There are a lot of different credentials out there and most sound impressive. You should at least know what ones your potential advisor has. An advisor registered with the SEC should be found on their website, but not all advisors have to be registered there (particularly newer ones who may not be running a whole lot of assets).
You should check out what any advisor tells you by using BrokerCheck just to make sure it all matches up.
After the interview, ask yourself who talked the most
If it was clearly the advisor who spoke the most, walk away. A good advisor should listen as much as they talk because they need to know your situation in detail. A good advisor will have asked you a lot of questions, taken notes, and given advice or thoughts based specifically on what they heard from you. If you mostly just listened to the person tell you what’s right for you without asking you lots of questions about your situation, be very wary.
I’ve found these six questions do a tremendous job of filtering out the people who view you merely as a way to make a buck.