Questions to Ask a Financial Advisor

1. Are you a fiduciary 100% of the time?

Our answer: We are a fiduciary 100% of the time.

Why it’s important: A fiduciary financial advisor is legally required to put your interest first.

A fiduciary is also prohibited from selling you a financial product (e.g., annuity, life insurance) in return for a commission. Their compensation must come from you (the client), and the dollar amount must be a transparent line item on your statement.

If you’re interested in working with a fiduciary, it’s critical to ask this question. Unfortunately, most financial advisors have to answer…NO!

Why? Because most advisors are “dually registered.” A “dually registered” financial advisor can take their fiduciary hat on and off. They are not a fiduciary 100% of the time.

2. How are you compensated? Where can I see this in writing?

Our answer: We make money only one way: as a percentage of assets under management.

We do not sell any products; we are a fiduciary 100% of the time. You can see this in writing on the invoices included in your quarterly statements. In addition, every SEC-Registered financial advisor is required to give you their Form ADV and Form CRS. These documents will give you a detailed breakdown of their services and fees.

Why it’s important: If you are not working with a financial advisor who is a fiduciary 100% of the time, they may try to sell you products that are not actually in your best interest. Anyone you work with should be able to tell you how they make money in one sentence.

3. Where do you keep my money and how can I see and access it?

Our answer: We use major third-party, FDIC and SIPC-insured custodian banks to hold your money. For example we would set up your accounts at Charles Schwab, and the accounts would all be in your name. You would be able to see your accounts online and have full access to your funds at all times. We would have limited power of attorney, meaning we could trade in your accounts and pull our fees from your accounts (with your approval), but we cannot move money in or out of your accounts. Only you can do that.

Why it’s important: Please confirm that your financial advisor is using a major third-party custodian to hold your investment/retirement accounts.

Well-known custodians include Fidelity, Schwab, and TD Ameritrade. When your advisor works with a trustworthy third-party custodian, they can’t go rogue with your money. They have limited authority to manage your investments and oversee your accounts.

Hint hint: Bernie Madoff was NOT using a third-party custodian and his clients’ money did not stay in their name.

A third-party custodian also provides investors with FDIC and SIPC insurance. Every third-party custodian provides online access for you to see your accounts. Many of them also have physical branches across the U.S. for you to visit.

4. What services do you provide?

Our answer: In addition to investment management (investing your accounts), we offer comprehensive Wealth Management and Financial Planning. Some examples include:

  • Project your future cash flows to help you make life’s major decisions.
  • Checking that your estate plan is up to date and your beneficiaries are correct not just on the accounts we manage but also on your home(s) and checking account(s).
  • Analyzing your tax returns to look for savings strategies.
  • Reviewing your life, disability, long-term care, and property and casualty insurance policies to see if the coverage and premiums are appropriate.
  • Facilitating charitable giving through specialized structures.

In other words, we act as your personal CFO and coordinate amongst your other professionals (estate attorney, CPA, insurance professional, etc.) to make sure we are all working together toward the goal of maximizing your financial profile.

Why it’s important: This list will help you understand if an advisor’s services are focused on one area (i.e., investment management) or comprehensive in nature.

If financial planning is offered, you’ll want to double check that your advisor has the training to do so. The most prominent designation is the CERTIFIED FINANCIAL PLANNER™ or CFP® certification.

A CFP® Professional is held to strict ethical standards and is required to go through a series of rigorous coursework and exams.

Additionally, a CFP® Professional must have at least three years of financial advisory experience and a four-year college degree. They are also required to take continuing education classes each year to keep up with the ever-changing world of financial planning.

5. How will you communicate with me, and how often?

Our answer: As often as you’ll let us! Typically, we conduct Advanced Plan meetings two to four times each year in person or via Zoom. In addition, we provide quarterly performance reports that include a market analysis. Further, we send out market commentary once or twice each month as appropriate. All that aside, we are available by phone anytime to chat and welcome your calls about everything financial in your life.  

Why it’s important: Communication is key to any successful relationship. A financial advisor should be proactive. They should give you regular updates and the latest investment guidance and research. And they should periodically check in to see if your needs have changed since the last time you met.

The right amount of communication will of course vary from person to person. It's a personal preference – strike a balance that works for you. When you've decided to hire an advisor, agree on how often you’ll touch base before you commit. You should expect at least one annual meeting to review your financial picture.

6. What is your investment philosophy?

Our answer:

  • Don’t try to time the stock market
  • Invest for the long-term
  • Diversification is key
  • Utilize ETFs and individual, investment-grade bonds
  • Keep costs low
  • Keep taxes low
  • Maintain discipline
  • Don't invest based upon media headlines
  • Rebalance regularly to maintain the appropriate portfolio allocation

Why it’s important: Investments play an important role in your overall financial health and you want to work with an advisor who uses methods you are comfortable with. The thing to watch out for here is that the advisor has a clear, evidence-based strategy that can be clearly communicated.

They should be able to clearly articulate their investment philosophy, strategy, and principles using evidence-based methodology. If this isn’t the case, they might be operating the investment side based on a hunch rather than academic research.

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