Finding a good Financial Advisor can be hard, mainly because entering the field is easy. If you complete a few regulatory exams you can become a registered representative (which is the regulatory title) and no specific skills or experience is required to become a registered representative. If you are looking for a financial advisor do not choose the first one you find take your time and interview a few before you settle with one. Here are ten questions I think you should ask the advisor before hiring them:
- How are you different than any other advisor?
Look for something that makes the advisor unique, maybe they are located in your neighborhood or perhaps the advisor meets clients on evening and weekends making them more accessible. If they tell you about all the exclusive investments they have I suggest you get up and leave.
- How many times have you changed firms and why?
Since most advisor’s are commission based they often switch firms for better payout, so find out how many times they have changed firms and what the reason was. If you notice they switch often I suggest you look for another one because they put their interest before client’s and chances are they will walk out on you as well.
- What do you think about index funds/etf’s and passive investing?
If they are commission based you definitely want to find out what they think of passive investing and index investing. The biggest chunk of advisor’s income is from mutual funds so most advisor have some type of reason why index funds and etf’s are a good choice for investors. If the advisor lists reasons why he doesn’t think index and etf’s are a good option, than look for another advisor.
- What do you think about mutual funds?
This relates to the previous question, if you notice the advisor is a big fan of mutual funds and points out all the benefits of it and no downside than you should look for another advisor. I do not have a major problem with mutual funds however I strongly believe that an advisor should point out the costs and other downside of mutual funds if they don’t then they are not looking out for the best interest of the client.
- What percentage of your clients funds are invested in Mutual funds?
This again is tied to the previous two questions, depending on their answers to the above questions you might want to know what percentage of their clients money goes into mutual funds this will give you an indication of how your investments will be distributed, high mutual fund percentage could be a reason for further research.
- Does your firm provide services other than investing such as estate planning and insurance?
Most advisors are licensed for investments and insurance, they are not tax or estate experts however most firms will have an estate or tax expert available for clients if needed. This will indicate if the firm is willing to go the extra mile for clients, which can be a good indication of the firms customer satisfaction.
- What types of services do YOU provide?
This is somewhat of a broad questions and it’s main purpose is to let the advisor show what they are capable of doing for their clients. Do they provide educational seminar’s? are analyst reports available?
- Can you give me some references?
Checking references is probably the best way to learn more about an advisor and the firm. Ask if they advisor can provide you with references the good ones will do so gladly, just make sure they are not friends or family.
- Ask to provide for sample portfolio
A sample portfolio of a client can show you how much stocks, bonds and mutual funds the advisors uses as well as turnover ratio. Watch out for high mutual fund proportions and high turnovers (buy and sell of stocks), this could indicate the some conflict of interest.
- Check background and credibility
Last but not least is to check the advisor’s and firms registration with the regulatory bodies. In US this can be done through FINAR Check the background of Your Investment Representative. In Canada advisor’s are registered through their provincial securities commission and Investment Industry Regulatory Organization (IIROC) here is Member firm Registration Info Services or if you want a little more IIROC Further Research.
All the questions are rated 1 because I think they are all important to ask. This is just a short list of questions you should ask a perspective advisor, make sure you do your full due diligence and research before you trust someone with your money, even if they are family or friends. It’s your hard work money and you do not want to throw it all out.
Check out: Investment Adivsor’s Conflict of Interest; An Insider View
What other questions would you want to ask?