Questions to Ask When Interviewing a Financial Advisor
1) Who is your typical client?
This question is designed to help figure out if the advisor has expertise in working with “people like you.” What you want to hear is that you are similar to the majority of clients with whom they work. You do not want to hear that they work with all different types of people. And while they may say they work with “nice people,” you need to get more detail than that.
2) May I talk to a few of your current clients to get a better idea of their experience with you?
As far as speaking to current clients, you will want to try to get clients that have worked with the advisor over a longer period. Because you are looking at forming a long-term relationship, wouldn't it be most useful to know that the firm treats its clients as well in years three, four, and five as they do when they are coming aboard? One warning, do not overemphasize the importance of the referral check as it is possible that a few clients who are used as referral checks receive a much higher level of service. Interviewing current clients should be used when you are nearing a decision on your advisor not at the beginning of the process.
4) What is your work background and experience?
Experience does matter. You want an advisor with experience helping clients like you. You may be better off working with an advisor who is 35 with 10 years of experience vs. an advisor who is 49 years old and just starting out. Experience will also help you identify what type of advice you are most likely to receive. If the advisor spent the majority of his or her time in investment management and stock picking, it stands to reason that is where the advisor is going to concentrate. If you want someone who is going to take an overall approach to your financial situation, he or she would ideally have experience with investments, tax planning, insurance, and estate planning.
5) What professional designations do you hold?
Professional designations are important, but they must be meaningful. The CERTIFIED FINANCIAL PLANNER™ certification generally takes at least two years to obtain, has about a 50-percent pass rate, and cannot be used until the advisor has two years of work experience. Other designations may sound impressive but can be earned by going to a two- or three-day class in Las Vegas and taking a test where the answers are already provided. They may be worthwhile classes to attend, but anyone can get the qualification. So beware of relying too heavily on the number of letters behind an advisor's name. The “quality” of the letters is what matters, not the quantity.
8) What is your basic strategy for managing client money?
You want to know whether the underlying investment philosophy matches your needs. If you disagree with the answer given or don't understand the philosophy after repeated attempts to explain, it is probably best to cross the potential advisor off your list. It is not your fault if you are unable to comprehend the acronyms, colorful charts, mountain graphs, and industry jargon that may be used on you. It is your advisor's job to explain things in a way that you can understand. You will want to learn whether your advisor is responsible for the day-to-day decisions on your portfolio, or whether he or she puts professional money managers in place to make those decisions, and monitors performance. Be careful of financial advisors who make their own stock selections. Most great money managers are not financial advisors. If they truly have the gift of buying and selling stocks, they will focus on investment management and make a fortune with that alone. Warren Buffet and Peter Lynch were investment managers, not stockbrokers or financial advisors.
9) What makes you unique among other advisors?
This one will often put the advisor on the spot. He or she will have to communicate if there is anything special about him- or herself. Again, this is an opportunity to see if what the advisor provides matches what you need. Look for self-assurance and an ability to communicate value to you. Be leery of self-centered cockiness (there is lots of it in the financial services industry). But beware of a lack of self-confidence, as this may signal inexperience or doubt in his or her ability.
10) What happens to your clients if you retire, are disabled, or die?
The important thing is that your advisor has an effective plan in place so that you do not experience service issues in case of the unforeseen. Does he or she have a database and documentation plan in place so that a successor advisor can step in and help without forcing you to “retrain” the replacement on all of the issues that are important to you and your family?
One Final Note . . .
Be careful not to make your decision based on emotions and sales techniques. If you have a feeling in the pit of your stomach and feel uncertain, you need to take more time. By telling the advisor you need more time, you will learn more about the advisor. If he has your best interest at heart, he will honor your request. If she applies pressure, gets upset, tries to scare you, or pulls back the offer, you should be concerned. Use the scorecard technique I've outlined to help you make a great decision.