Hiring a wealth advisor can be a great way to get your finances in order and achieve your investment goals. However, it’s important to do your due diligence before hiring anyone so you can find an advisor who is qualified, experienced, and receptive to your needs. One way to do that is by asking the right questions.
In this blog post, I’ll discuss what you should expect from a top-tier wealth advisor and the important questions you should ask before engaging them. These questions will help you get to know the advisor better, making sure they’re a good fit. Even if you have an advisor, you can make these questions part of your next review meeting.
Why Hire a Wealth Advisor?
Not everyone will hire a financial planner or wealth advisor. But most individuals who do hire an advisor make that decision when their financial situation becomes too complicated or cumbersome to handle on their own.
Let’s review some of the reasons you might seek out a wealth advisor.
A great advisor can help you:
1. Crystalize objectives. Whether your goal is to retire early, send your kids to college, or leave a legacy for your loved ones, a financial advisor can help identify your goals and then customize a plan to achieve them, monitoring progress along the way.
2. Tax planning. Wealthy individuals have complex tax situations. A wealth advisor can help you understand your tax obligations, customize a financial and investment strategy to minimize tax liability, and collaborate with your CPA.
3. Retirement planning. A wealth advisor can create an optimized withdrawal strategy (which accounts to take income from and when) to maximize the longevity of your investments, all while minimizing taxes.
4. Portfolio optimization and behavioral coaching. Wealth advisors generally stick to a well-defined investment process that seeks to maximize return for a given level of risk over time. They can help determine the right amount of risk for your situation and counsel you through the inevitable market challenges and economic turbulence.
5. Charitable giving. Wealthy individuals often want to give back to their communities through charitable giving. A wealth advisor can help you create a plan for charitable giving and maximize the tax benefits of your donations.
6. Risk management. Wealthy individuals often have significant assets to protect. A wealth advisor can help you develop a risk management plan that protects your assets from loss.
7. Complex financial decision-making. Financial advisors can help you make complex financial decisions, such as whether to buy or sell a home, start a business, or take on debt.
8. Navigate the changing landscape. A wealth advisor is constantly staying up to date on the latest financial news and trends. Legislation and tax laws also change frequently. An informed advisor can provide you with the best possible advice.
9. Save time and stress. Managing your finances can be time-consuming and stressful. A wealth advisor can take care of the details so you can focus on other things.
10 Questions to Ask a Wealth Advisor
These questions will help you (and your advisor) determine if your unique expectations, circumstances, and goals match their service and experience.
1. What services do you provide?
Some advisors are pure investment managers. Others provide a fixed-fee financial planning engagement but won’t manage investments. And yet others provide comprehensive wealth management, which includes ongoing financial planning and investment management.
2. What are your qualifications?
There are several industry designations that advisors can earn to demonstrate their commitment and expertise. All of these designations require ongoing continuing education to keep the advisor informed of the ever-changing landscape.
The most common designations for wealth management professionals are:
Certified Financial Planner – CFP®. The CFP designation is the most widely recognized designation in the industry, awarded by the Certified Financial Planner Board of Standards (CFP Board) to individuals who meet rigorous education, experience, and ethics requirements. CFPs are required to complete a comprehensive curriculum on financial planning topics, pass a difficult exam, and agree to abide by a strict code of ethics.
Chartered Financial Analyst – CFA®. The CFA designation is another highly respected designation in the financial industry. It is awarded by the CFA Institute to individuals who have demonstrated expertise in investment analysis and portfolio management. CFAs are required to complete a rigorous curriculum on investment topics, pass a three-part exam, and have four years of relevant experience.
Chartered Financial Consultant – ChFC. The ChFC designation is awarded by the American College, requiring completion of a comprehensive curriculum on financial planning topics, passing a rigorous exam, and having three years of relevant experience.
Certified Public Accountant – CPA. The CPA designation is a professional accounting designation that is awarded by the American Institute of Certified Public Accountants (AICPA). CPAs are required to complete a bachelor's degree in accounting, pass a four-part exam, and have one year of relevant experience.
3. How long have you been in the financial industry?
It’s important to know how long your advisor has been practicing and to get a brief history of their experience.
4. What type of experience do you have helping clients with financial goals like mine?
You want to find out what type of client your advisor specializes in working with. Is it people just getting started, or individuals with established wealth? Is it retirement planning for executives, debt management for young medical professionals, or exit planning for business owners? Perhaps they can give an example of how they’ve helped a client like you achieve their goals.
5. What is your investment philosophy?
There are many ways to manage an investment portfolio. Does your advisor use a repeatable defined process, or do they fly by the seat of their pants? Do they use an active approach to investing, or a passive one? Do they prefer individual stocks and bonds to build a portfolio, or do they use exchange traded funds and mutual funds? And an important follow-up question is why?
6. How do you choose investments?
You’ll want to understand their process for selecting the investments that will go into your portfolio. Do they follow a documented rigorous process, or do they piggyback on a model from an investment company like Blackrock or Vanguard? What research tools are they using, and how often are these investments reviewed?
7. What are your fees and costs?
The answer to this should be very straightforward, with no hemming and hawing. Are they paid only a transparent fee from you, or will they receive commissions from another source? Do they charge separately for the financial plan and investment management, or is there one fee that covers both? Will they receive any other source of compensation? What are the upfront or ongoing costs of the investments being used?
8. How often will we meet to review my investment performance and progress toward my goals?
Your advisor should offer to meet with you at least once per year, but it’s not uncommon to meet two to four times per year. Generally, you’ll want more time with your advisor when you’re first engaging them or when you’re going through a major life transition such as retirement, job change, or business exit.
9. How will you communicate with me?
When and where can I find my statements, my financial plan, and periodic economic and market updates? How do you distribute my tax information each year? Do we Zoom, or do we always meet in person?
10. Are you a fiduciary?
A fiduciary is a person or entity that has a legal obligation to act in the best interests of another person. In the context of financial services, a fiduciary financial advisor is required to put their client's interests ahead of their own when making investment recommendations. This means that a fiduciary advisor cannot recommend products that are not in the best interest of their client.
There are a number of benefits to working with a fiduciary financial advisor. First, you can be confident that your advisor is putting your needs first. Second, you can be sure that your advisor is providing you with unbiased advice. Third, you can be confident that your advisor is taking all your financial goals into account when making recommendations.
Now that you know what questions to ask, how should you go about finding a financial advisor?
A great way to find an advisor is through a referral from friends, family, or colleagues. I’d recommend interviewing multiple advisors before making a final decision. In our practice, we interview plenty of potential clients that aren’t a perfect fit. In those cases, we happily refer them to other advisors.
Even if you’ve already found your perfect match - like us, for example (wink, wink), you can share this information with friends and family who may be wondering if they need a wealth advisor and what questions to ask.
Please reach out if we can be of help or answer any of these questions!
Happy planning,
Brian