If part of your plan for the New Year is to hire or change financial advisors, it is never too early to start that process. Many people do not ask enough questions when vetting out a new advisor, and simply hope for the best.
Ask is what the prospective planner feels is his or her most helpful service for their clients. This will give you a glimpse into what that particular advisor also favors. If the answer is investment dominated, then you know that investing is likely to be a big part of the deliverable. If the answer is insurance oriented, it would be reasonable to assume that the advisor sells insurance. There may be no right or wrong answer to this question, but make sure that it is an answer that suits you and matches what you are looking for.
Ask about the resources beyond those of the advisor that you are interviewing. Some clients prefer the large brand name behind the advisor and others may prefer a smaller independent practice. Some like a specific expertise, such as investments, estate planning or insurance while others will want a deep bench of subject matter experts across a wide range of expertise within one firm. Ask who specifically will be assigned to your situation besides the person you are interviewing.
Inquire about how the advisor gets paid. There are two parts to this question. The first part may be about the method of compensation. Advisors may get paid in a variety of ways ranging from flat fees to commissions, and all combinations in-between. You should understand how your advisor will be paid. The second part you want to know is what percentage of their overall revenue comes from what sources. If you have an advisor who receives commissions, ask what the breakdown of commission income is from investments, insurance, annuities etc. Also ask about the companies whose products they sell and whether any one company occupies more than 25 to 50 percent of their commission income in a given area. For advisors who are fee-only advisors, ask what percentage of their income comes from the financial planning and what percentage comes from asset management. Also ask if there are any related parties who they regularly use for insurance or other services.
Learn about the disciplinary history of the firm, the advisor, and anyone else on that advisory team who will work with you. This information is readily available from the state, the SEC or FINRA online.
Ask the advisor to describe their best clients to you. Force the advisor to be detailed about the income, net worth, age and fee ranges that these best clients pay. From there, decide if you fit that profile and believe that they can meet your needs.
Evaluate whether you can feel comfortable enough to let the possible advisor know about your most private personal and financial matters. Do they speak in plain English, listen carefully to your needs and answer in a language that you can understand? If not, keep shopping.
John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA. Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investment and financial planning advice offered through US Financial Advisors and Great Valley Advisor Group, Registered Investment Advisors.
