Updated: Aug. 7, 2023 at 5:37 a.m. ET
Your financial adviser likely manages your life savings — but have you truly vetted them? Here are all the questions you should ask any adviser you might hire, and ask your current one if you haven’t already. Indeed, these questions can save you time and money, and ensure you’ve hired the most qualified, and ethical, person you can.
- Are you a fiduciary?
Fiduciary advisers are required to put their clients best interests first, ahead of their own. “Not all financial advisers are fiduciaries, and you want your financial adviser to work for you and act in your best interest, without any conflicts,” says certified financial planner Ryan Haiss at Flynn Zito Capital Management.
To determine whether or not someone is a fiduciary, you can ask them, look at their designations (CFPs are held to a fiduciary duty) or vet them through the National Association of Personal Financial Advisors (NAPFA) database. (Looking for a new financial adviser? This tool can match you to a fiduciary adviser who may meet your needs.)
- What are your qualifications/credentials?
Some financial professionals have gone through a lot more training than others. Here are a few of the most common qualifications for financial advisers, and what they mean:
– Certified Financial Planner (CFP)
CFPs must hold a bachelor’s degree or higher and complete financial planning coursework through the CFP Board. They must also pass the CFP exam and have 6,000 hours of professional experience or 4,000 hours of apprenticeship experience. CFPs must also adhere to high ethical and professional standards and act as a fiduciary when providing financial advice.
– Chartered Financial Consultant (ChFC)
Before enrolling in The American College of Financial Services ChFC 8-course program, candidates must have 3 years of full-time, relevant business experience and a high school diploma or equivalent. Upon passing a closed-book exam, candidates must agree to comply with the American College code of ethics and procedures and recertify their eligibility every 2 years.
– Chartered Financial Analyst (CFA)
To become a CFA, you must have a bachelor’s degree, pass 3 levels of CFA exams with 900+ hours of self study in 10 topic areas, complete 4,000 relevant work experience, submit 2 to 3 professional reference letters.
– Registered Investment Advisor (RIA)
RIAs must pass the Series 65 (Investment Advisers Law) exam administered by the Financial Industry Regulatory Authority (FINRA); and register with the SEC or state authorities, depending on how much money they manage.
– Certified Public Accountant (CPA)
CPA rules differ by state, but generally, to pursue the CPA designation, you need to complete certain college-level education courses in accounting and then pass the Uniform CPA Examination given through the National Association of State Boards of Accountancy (NASBA). After passing the exam, candidates need 1 year of experience in accounting, auditing, taxation or attestation, and some states require candidates to pass an ethics exam.
- What are your personal or firm values?
Asking your adviser what their personal and/or firm’s values are can be not only eye opening, but also helpful in determining whether they’re the right adviser for you.
“There are few things more intimate, more emotional, or more value-laden than talking about money. If you feel your adviser’s values are poorly aligned and in conflict with your own, how comfortable will you be in being completely candid in talking about your values and what’s most important to you?” says certified financial planner Lisa Weil at Clarity Northwest.
- What is your investment philosophy?
“Ask your adviser what their investment philosophy is and how they handle market downturns. Some advisers may take a more passive approach and some may take a more active approach. There are pros and cons to both, but it’s important to understand so you can have the right expectations,” says certified financial planner Mark Brinser at Stewardship Advisors.
- What is your fee structure?
First, be sure to ask your adviser if they’re fee-only, meaning all their fees come from the client, or if they’re fee-based, which means they can take fees from the client as well as commissions and fees from other parties. The latter can create a conflict of interest. (Looking for a new financial adviser? This tool can match you to a fiduciary adviser who may meet your needs.)
“Ultimately you will want to ask if you’re receiving at least as much value for the services as the fee you’re paying and if the compensation model and advice align with your best interests in mind,” says certified financial planner Sam Schwartz at Anchorpointe Wealth Management.
Secondly, dive deeper into how you will pay them:
- Fixed fee
“There is a growing portion of the wealth management industry that is moving toward flat and fixed-fee offerings. This service is priced not as a percentage but rather in dollars and not only provides more transparency around costs, but also better aligns the costs to all the areas where value is delivered,” says certified financial planner Curtis Bailey at Quiet Wealth. Rates for fixed fee advisers varies based on location and experience, but most planners charge between $2,500 and $10,000 under a fixed fee structure.
- Hourly fee
Financial planners who charge hourly fees can be controversial, as some pros feel that hourly planning creates a barrier in the most trusted relationship a consumer might have with their financial adviser. “From my experience, clients do not want an hourly fee barrier every time they have a question or need help from their adviser,” says certified financial planner Lynn Dunston at Moneta Group.
On the other hand, even though working on an hourly basis may be inherently more transactional that other fee models, by providing hourly fee structures, many younger, but still successful and hardworking people can afford financial planning services, whereas they may not qualify to meet a firm’s minimums otherwise. Hourly fees vary based on location and experience but rates under the hourly fee structure tend to run between $150 to $450 per hour.
- Assets under management (AUM)
Some advisers charge an assets under management fee, which is a percentage based on the total number of funds being managed. The industry standard is 1%, but it’s not uncommon to see AUM rates above or below 1%.
“The reason so many firms charge an AUM fee is because they want to create deep, long-standing relationships with clients and they want to do so with those they can create the largest impact,” says Adam Koos, certified financial planner at Libertas Wealth Management.
If your adviser is working on commission, there’s always the possibility that there will be a source of conflict. Asking your adviser if they’re recommending or selling products that will pay them a commission is an indication that they’re not a fiduciary and therefore not necessarily giving you financial advice that puts your best interests ahead of their own.
- Fixed fee
- What types of clients do you typically have?
Asking an adviser what type of client they typically work with can help you find someone familiar with situations like yours. “After learning how an adviser is paid, the next most important factors revolve around finding a good fit. If you’re a small business owner, you probably want to work with a financial planner who has many other clients like you. Similarly, if you have small children or are a single parent, you may want to ask your planner if he or she has experience with clients with similar backgrounds. That’s one reason it can be helpful to ask friends for referrals in addition to searching for professionals online,” says Kimberly Palmer, personal finance expert at NerdWallet.
- How will we work together?
It’s important to gauge expectations from the get-go and asking your adviser how you’ll work together and in what capacity is the first step in ensuring you’re on the same page. “At the very least, an adviser should be checking in with their client annually to see how they’re doing, go over their performance and discuss potential changes moving forward,” says certified financial planner Eric Presogna at One Up Financial.
While face to face meetings used to be the norm, since the start of the pandemic, many advisers have moved to virtual-based relationships. “CFPs are held to very high ethical standards and working face to face or virtually doesn’t change that. We can charge a lot less because we do not rent an office,” says Mark Kinsella at Family Financial Planning Services.
- What resources will I have access to through you?
Depending on what your needs are, your financial adviser may recommend more specific professionals to assist in creating a streamlined plan. “In the process of evaluating a client’s circumstances, we identify if and when another professional is needed. If there’s an insurance need, we may discuss the topic with their agent or refer one if they don’t have one. We often attend client appointments with the estate planning attorney in order to help the process along. Coordinating with other professionals, whether the tax adviser, estate attorney or insurance agent helps to ensure that everyone is working in a cohesive manner so nothing is done by one party that will come in conflict with what the other is trying to do,” says certified financial planner Joe Favorito at Landmark Wealth Management.