5 Questions for a Potential Financial Advisor

Laura Joszt

Before signing away control of your hard-earned money, it's your responsibility to find out as much as possible about any prospective financial advisors.

Before signing away control of your hard-earned money, it’s your responsibility to find out as much as possible about any prospective financial advisors. Keep in mind, though, that each person might have different objectives and needs when looking for the right financial advisor.

Interviewing a potential financial advisor will help you gauge if he or she is really the right person to handle your money and make decisions on your behalf. Steve G. Blum author of Negotiating Your Investments: Use Proven Negotiation Methods to Enrich Your Financial Life, recommends asking a lot of questions and showing interest in what the advisor has to say. Don’t be afraid to seek clarification for anything you don’t already know or understand.

Blum, who holds 2 law degrees and is the principal at Steven G. Blum and Associates, LLC., provided several questions clients should ask when interviewing a potential financial advisor.

1. What credentials have you earned? What college degrees did you earn?

There are no requirements for a financial advisor, but, ideally, you would want someone with a CFP (certified financial planner) designation. In order to receive a CFP, the advisor must have 3 years of practical experience. Financial advisors can also be certified public accountants, personal financial specialists, chartered financial consultants, etc. There’s a whole alphabet soup of credentials.

After the potential advisor has given you his or her credentials and explained what they are, you should still check with the appropriate organization to confirm what you’ve been told is correct.

2. Will you give me 2 or 3 investment statements for current clients (names and identifiers redacted) so I can see how you invest?

Physicians and other high-income earners have special needs when it comes to how their money is handled and invested. The strategies and investments used for middle-income individuals aren’t necessarily the best for people making $200,000 a year and more.

This will give you a good idea of whether or not the financial advisor is experienced in working with high-income earners, or if he or she is better suited for the average American.

3. Do you have a fiduciary duty to me? Explain what that means to you.

Just as physicians should have a patient’s best interest in mind when making decisions and recommending treatment, a financial fiduciary has the client’s best interest when investing his or her money. A fiduciary, like a CFP, places the needs of the client before his or her own need to sell a product that, at face value, seems suitable for the client, but may fall short of the client’s needs and expectations.

Working with a fiduciary is not a guarantee that you won’t lose money or that your investments will consistently beat the market, but it does minimize risks and ensures that your interests will be served first and protected, according to H. William Wolfson, DC, MS, MPAS, who is currently a candidate for his CFP.

4. How do you deal with the problem that your interests and mine are sometimes in conflict?

Keep an eye out for money-related conflicts of interest, such as commissions, fees, and sales quotas. Even a fiduciary could have conflicting interests, but he or she will at least disclose it beforehand.

“A fiduciary may work for a fund that only allows him or her to sell the fund’s proprietary products,” according to a Forbes article. “As long as he or she discloses that to you, he or she is still a fiduciary, even if there are investments outside of that fund that are better for you.”

A non-fiduciary advisor might recommend an investment that isn’t best for the client simply because the advisor receives a commission from it.

5. What percentage of your work is spent serving your current clients? How much is spent looking for new clients?

An advisor who is spending the majority of his or her time trying to bring in new clients and more revenue probably isn’t giving your money an adequate amount of attention. If the advisor is splitting time, then it could affect how your money is handled. Often there isn’t much you can do about it, but you should be aware the issue could arise and pay attention to the way it could affect your money.