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Questions to Ask When Choosing a Financial Advisor

Maybe you already work with a financial advisor or you are looking for financial advice as you are nearing retirement. You obviously want to avoid the Bernie Madoffs and Gordon Gekkos of the world. To help you do that, there are some very important questions you should ask any current or potential advisor. These questions will help you understand potential conflicts of interest and how working with an advisor will help you accomplish your financial goals and dreams. 

 

  1. Are you a fiduciary? 

A fiduciary is required by law to place the interests of their client above their own. Not all financial professionals are required to be a fiduciary. Financial advisors can be held to different standards based on their firm structure and regulatory bodies. The difference that is important for you understand is fiduciary versus suitability. 

  • An investment adviser that works for a Register Investment Advisory (RIA) firm is required by law to be a fiduciary and follow fiduciary standards set by the Securities and Exchange Commission (SEC). A fiduciary is obligated to put your interests first and to disclose any potential conflicts of interest. Investment advisers must also ensure that any investment advice is given after thorough analysis using accurate information. 

  • Broker-dealers follow suitability standards set by the Financial Industry Regulatory Authority (FINRA). Suitability is loosely defined as making recommendations that are suitable for the interests of the client. A broker-dealer simply needs to believe that their recommendations are beneficial to the client. 

Some financial advisors may also wear both hats, acting as a fiduciary in some situations and by suitability standards in others. Ask your advisor if, and when they will be acting as a fiduciary and when they are not. 

To determine if an advisor or firm is held to a fiduciary or suitability standard you can look up their registration at: https://brokercheck.finra.org/. RIA firms are required to register with the SEC and file a Form ADV. This discloses how the advisor is paid, their investment strategy, and any disciplinary actions. 

 

2. How do you get paid? 

It is important to understand how an advisor gets paid before engaging in their services. There is a myriad of fee structures used by financial advisors. Advisors will usually fall into one of three categories: 

  • Fee-only advisors charge a flat fee, a percentage of your assets under management or an hourly rate.  

  • Advisors that work for broker-dealers or insurance companies typically receive commissions on the products that they sell to you such as annuities, mutual funds and life insurance.  

  • Fee-based advisors may charge a percentage of assets under management and receive a commission for selling certain products such as life insurance. 

 

3. What fees am I paying? 

Alongside understanding how an advisor is paid, it is also important to know what fees or charges you are incurring in your investments. If you are being charged an assets under management fee, make sure you understand if there are additional fees or expenses for the specific investments in your portfolio. Some commons additional fees and expenses are: 

  • Trading costs 

  • Expense ratios 

  • Front-end or back-end load fees 

  • Surrender charges 

 

      4.  What are your professional qualifications? 
An advisor’s certifications will tell you about their educational background, work experience, and any ongoing requirements that need to be met to keep their certifications. The three most recognized qualifications for a financial advisor are: 

Certified Financial Planner (CFP) 

 

Chartered Financial Analyst (CFA) 

  • To become a CFA holder, an advisor must: hold a bachelor’s degree, have four years of relevant work experience, pass three analytically rigorous exams, and sign off annually that they are following the CFA Institute standards of professional conduct and code of ethics. 

 

Certified Public Accountant (CPA) 

  • To obtain a CPA license, an advisor must: hold a bachelor’s degree in accounting, finance, or business administration, complete 150 hours of education, have two years of public accounting experience, and pass the certification exams required by the state.  

  • For more info about CPA professionals: https://www.aicpa.org/ 

 

Additional Questions to Consider Asking: 

  • What is your investment philosophy? 

  • What services do you offer? 

  • What does your ideal client look like?  

  • Will you be the only advisor working with me? 

  • What happens if you leave or retire?  

  • Why did you become a financial planner? 
     

This is by no means a comprehensive list. But by asking some of these important questions you can make an informed decision about your financial future and how your advisor can help you accomplish your goals. 

Are you looking for a financial advisor or just want to know where our team stands on any of these questions? A member of our financial planning team is happy to speak with you and answer any of these questions, or others that you may have! 

– Jace Cox, Financial Planning Specialist

To learn more about the author of this article Jace Cox, visit: https://www.adamswealthadvisors.com/jace-cox-profile. Or connect with him on LinkedIn: https://www.linkedin.com/in/jace-cox/.

Disclosure:

Adams Wealth Management is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. 

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