What to Ask When Interviewing a Financial Advisor
Updated: Nov 29, 2021
This is what I'd be asking if I was interviewing a financial advisor
1. Are you a fiduciary?
Why is being a fiduciary so important? By definition, and by law, a financial advisor who is a fiduciary is required to act in your, their clients, best interest. You’re probably wondering - shouldn’t this be a given? Technically it should, but believe it or not it isn’t. There is also a standard known as the “suitability standard,” meaning the advisor needs to do what is suitable, not necessarily in your best interest. While it may seem small, when working with an advisor it's a big difference. You will most likely want to work with a fiduciary.
2. How are you compensated?
Seems like a simple enough question, no? It is, and it’s important. Understanding how advisors are paid is key to understanding any underlying conflicts of interest. Fee-only is typically the direction you will want to go in, and always be weary of underlying commissions or sales incentives. No matter how an advisor is paid it’s difficult to avoid all conflicts of interest, but knowing how an advisor gets paid from the relationship will at least make any conflict transparent if it hasn’t already been disclosed. As a general rule of thumb, fee-only advisors typically act as a fiduciary.
3. What is your advisor-to-client ratio?
This is important to understand the nature of the advisors relationship with his clients and the expectations moving forward. A lower ratio of clients-to-advisor isn’t necessarily better, yet it will give you an indication of how many relationships the advisor needs to service and the type of depth they may be able to get into with you the client.
4. Who owns the firm?
This is probably more important than you may realize. The ownership structure doesn’t necessarily make one advisor better than the other, however it’s important to know what is most important within the firm and who is most interested in the bottom line. If you are working with an advisor of a publicly traded company, that company is actually required to act in the best interest of its shareholders and the company’s financials. Why is this important? Well the way advisors at this type of firm may work with clients could be putting the company's bottom line ahead of their clients (sorry Wells Fargo). You may also have a situation where a Private Equity firm buys a piece of a larger RIA business. If this is the case, again it doesn’t diminish the role of the advisor who works there, however it could effect the overall company culture and what drives “success” within the firm. It can be a cutthroat culture squeezing every dollar out of the bottom line. While ownership isn’t the end all be all, it is important to know how the firm is structured and what drives business decisions.
5. Is there a succession plan?
Through the years I’ve successfully onboarded many clients who came from another firm, usually larger brokerage firms, who had worked with an advisor for years and all of a sudden found themselves working with the “successor.” Because they were coming to us, the successor they were left working with was someone they barely knew. Many times they never met before due to a unplanned or immediate succession plan within the firm - whether through a retirement or sudden need to stop working. It’s hard to build trust with someone you don’t know and understanding the firms succession / backup plan is critical for the long-term relationship you are hoping to forge.
6. What is your investment philosophy (and making sure it aligns with yours)?
Most financial advisors will be working in a capacity of investing your assets. It’s critical that your investment philosophy aligns with your advisor. There are many ways to manage a portfolio, and frankly at the end of the day if the advisor has a long-term perspective in mind, most similarly allocated strategies will probably perform relatively close over time. It is important that from the start your philosophy and values of investing align with your advisor to set the appropriate tone and expectations for the future. Expectations are everything here - this needs to be a two way street and hopefully the advisor you are working with sets expectations, as well as asks you about yours.
7. What are your planning services and capabilities?
Many advisors these days will set you up in a vanilla portfolio of ETFs, never touch them, and forget to do any real financial planning with you. Make sure that when you start the relationship, you get a feel for the types of services outside of investment management you can expect. Ask what a typical financial planning engagement looks like and the types of advice and services they provide. If it’s an important element of the firm, it should come through with the advisors response to these questions.
Written by: Ryan Bouchey