It’s estimated 80% of Americans will never work with a financial advisor.
64% of Americans are living paycheck-to-paycheck.
I can’t help but wonder if those two stats are related. Here’s what I do know: It really helps to talk things out. Whether you’re experiencing relationship problems, trying to lose weight, or get your finances in order, there’s value in having another set of eyes.
As the financial services industry changes and evolves, there are more and more opportunities to interact with someone. I want to prepare you to have a successful interaction by sharing a list of the best questions to ask a financial advisor (or whoever you decided to talk with).
I’ve spent my career in personal finance, beginning in 2001. Today, I own and operate an independent financial firm, as well as a financial coaching company. I’m honored to be named to Investopedia’s list of the top 100 financial advisors in America many years running. My work is focused on helping people get better at money so they can live how they want.
Here’s what we’ll cover:
- The different types of financial professionals
- The best questions to ask a financial advisor
- How to find your financial professional
Let’s get started.
The different types of financial professionals
When you think of a financial advisor, what comes to mind? Is it a buttoned up professional in a big office? That’s what I think of, and there are certainly a lot of professionals who fit that description. But there are also many who do not. Here are some of the different kinds of financial professionals.
A financial planner helps you create and implement a financial plan. They are trained to help you get clear on your financial goals and objectives, and then put plans together to help you reach them. They have a working knowledge of many aspects of personal finance.
An investment advisor’s job is to help you with your investments. They’re trained to help you determine your risk tolerance, financial objectives, create an asset allocation, and help you to make investment decisions.
Financial services professionals
A financial services professional may represent a specific company, or they may work as a broker of several companies. They may assist with you one aspect of your financial situation like insurance, or they may take a more comprehensive approach.
Financial coaches are a relatively new type of professional. They focus more on helping their clients with their financial behaviors and habits. They don’t provide advice or sell products.
FinTech (Financial Technology) companies are technology-enabled. Larger companies wish to cater to and help ordinary investors by offering investment advice through something called a Robo-advisor. Robo-advisors are low-cost investment managers who utilize software to make investment decisions. Oftentimes, clients of a robo-advisor will have access to dedicated financial professionals who can answer questions.
As the financial services industry continues to grow and evolve, I think consumers will continue to benefit.
The best questions to ask a financial advisor
Going through the different kinds of professionals, you no doubt have a lot of questions. If you’re serious about engaging with a professional, it’s really important to be crystal clear of everyone’s expectations. The more work you can do on the front end, the better off you’ll be.
Here are the best questions to ask:
How are you compensated?
Many people are uncomfortable asking others how they’re paid (I used to be). But this is one of the most important questions you need to ask. It will tell you a lot more than the dollar amount. This question will help you determine what their motivations are (if they’re product or commission driven).
Also, if they’re not comfortable or unable to answer this question, that’s a major red flag and you should not engage with them.
Some professionals will earn commission from the sale of products. Some will earn a percentage of the assets you have invested with them. Some will charge you a flat fee for creating a financial, some will charge you hourly, and some will charge an annual fee.
Will you, the client, be paying them? Or will another financial company be paying them?
What kind of work do you do?
You need to know what kind of professional they are. Will they help you create an entire financial plan? Will they help you with your 401(k)? It’s essential to know their scope of services and what you should expect.
Can I see your work product?
They should have a “finished product” their clients receive. It could simply be a PDF document, but it’s important to ask what you’ll get from working with them.
What software do you use?
This will also help you determine what kind of work they will actually be doing for you.
What products do you sell?
They may not sell any products at all, or they may sell many products. It’s important that you know the full scope of the work they do.
Do you earn commission from the sale of products?
This may seem repetitive, but you want and need to know the answer to this question.
Do you earn compensation from companies?
Again, you want to know where their compensation is coming from.
What do you do when your clients need a product you don’t sell?
If they don’t sell products, will they introduce you to another professional who can help you?
What does a successful client relationship look like for you?
How do they interact with clients? What are their expectations of you?
What will our relationship look like?
How often will we meet/communicate?
What if I have a question?
Can you call or email them anytime you like? How often can you meet with them?
Are you a fiduciary?
Being a fiduciary means you’re legally obligated to act in your clients best interest. When hiring a financial advisor, investment advisor, or financial planner, I think working with a fiduciary is essential. There are enough of them out there, there’s zero reason to work with someone who is not.
Asking the questions
This is certainly something you can email to them in advance of meeting with them. Simple say this, “I’m looking forward to our conversation. Please take a look at this list of questions I’d like to cover during our time together.”
How to find your financial professional
I think the best way to meet anyone is through a referral or personal introduction. Ask someone you like and trust who they work with, and ask them to make an introduction.
If that doesn’t work for you, make sure you ask the questions we just went through. I host a daily podcast called LifeBlood, and have had as guests hundreds of financial advisors. Those conversations have restored my faith in the industry because the vast majority I’ve spoken with have been top-tier professionals.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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