If you are shopping for a financial advisor, you need a good checklist of questions to ask. What you are looking for is someone who handles clients like you, who can relate to you and who is financially astute.
As you assess an advisor who manages your assets, for instance, do yourself a favor: Don’t rely on his or her investment record. An advisor whose investment performance touched the stars last year may falter this year. More important for many is how skillful an advisor is at managing risk. That may range beyond market forecasts into such realms as estate planning, for example.
This list of questions to a prospective advisor will help you decide whether the person is the right fit for you:
What Don’t You Do? Some advisors are strictly asset managers. They run your portfolio and do no planning. Others are wealth managers, whose mandate is broader: They work with you to plan your financial future and take into account the risk in your life.
Within these categories are professionals with specific areas of focus such as insurance and estate planning. You may hire an advisor to draw up an investment plan aimed at gathering enough assets to see you through retirement. And another member of the advisor’s team may create a trust to pass along wealth to your grandkids. Make sure you know the difference.
Who Is Your Typical Client? Let’s say you are starting out and have a net worth of just $50,000. It may not make sense for you to hire an advisor who typically handles multi-millionaires.
You may want to find an advisor who focuses on your occupation. Say you are a doctor: An advisor who knows about malpractice insurance and practice partnerships could be better for you than one who mainly deals with corporate executives. Or you may want an advisor focusing on your life stage. Perhaps you are widowed. Or a new parent. Or divorced.
What Clients Don’t You Want? One advisor may not want anyone with under $100,000 to invest. Another wants only those people. Beyond asset size, goals and styles also are important. If you get a vibe that an advisor will be tough to relate to, you’re probably right.
What Is a Recent Client Success Story? Showing clients how to unknot a problem, protect against calamity or enhance their holdings are key ways that advisors help out. If a prospective advisor can point to specific stories where he or she fostered a client’s success, it gives you comfort the advisor can aid you, too.
What Is the Worst Thing You Have Seen Someone Do Financially? To err is human. Sometimes, an advisor is called in to repair problems people have created for themselves. Sometimes, clients go against an advisor’s counsel and drive into a ditch. Clients, after all, are not required to follow professional financial advice. This question helps you gauge an advisor’s nose for trouble. Believe it or not, there are advisors who told their clients to retreat into defensive positions prior to the 2008 market debacle, to lighten up on debt or to back out of heavy real estate exposure. On a smaller scale, a sharp advisor may warn clients to avoid dumb moves like keeping most of their assets in employer shares or chasing hot stock tips.
This list of questions is by no means the only questions you need to ask a prospective advisor. But hopefully they help you determine whether an advisor is the right one for you.