I don't know if you remember the '70s television detective show Columbo. I may be showing my age even bringing it up!
Peter Faulk starred as the L.A. homicide detective in the show. He was very messy and absent-minded. So the criminals usually underestimated him or thought him to be incompetent.
Until he started his line of questioning.
Columbo started with casual open questions, just to get you talking. Then, he would slip in the real question.
You don't have to be as sneaky with your questions as Columbo when hiring a new financial adviser.
Just come out and ask.
So what are some of the best questions to ask when shopping for a financial adviser?
Are you a fiduciary? Is an adviser doing what's in your best interest or his? The question can be summed up with two terms: fiduciary and suitable. A fiduciary must do what is in your best interest. His responsibility is to you and your financial interests, regardless of the impact on his own wallet.
How are you compensated? You need to know his model before you hire them. There are several different ways financial services people get paid. Commissions and fees. Commission-based adviser are usually not fiduciaries, they only have to recommend a suitable product. Fee-based advisers get paid a percentage of your assets. So their incentive is to help you grow or preserve your portfolio, therefore they will get a percentage of an increasing portfolio.
What will your services cost me? The cost will depend on your needs as well as other factors such as the assets to manage. The estimate could be a flat hourly rate, flat fee or even a percentage of assets under management. Always get a ballpark, and know their model.
What licenses, designations and certifications do you hold? Just because an adviser calls himself a financial planner, doesn't mean he has the advanced certifications to be one. Make sure they hold the Certified Financial Planner (CFP®) or Chartered Financial Consultant (ChFC®) designations. That means they have done the arduous continuing education and testing to be financial planners.
What experience do you have? An adviser should be able to tell you exactly how long they've been in the profession. Many planning designations require at least 3 years of experience. You'll want an adviser that has been through several up and down market cycles. That way they have had experience coaching clients through good markets and bad.
What types of clients do you specialize in? You'll also want to make sure that the financial adviser you choose specializes in the type of client that you are. So if you are a business owner, you'll want an adviser that works with businesses. If you are a retirement plan committee, then a specialist in retirement plan consulting. If you need financial planning and the adviser works with investments primarily, then you may not have a match.
How often do you contact your clients? It's important to know this up front. If you are expecting more attention than you get, you will be disappointed. Depending on the client that can range from monthly contact and frequent in person reviews, to a few contacts per year. You should expect at least one annual in person review.
What happens to my money if you bite the dust? I discussed this in a recent article. The question comes up quite often for me. Does the adviser have a partner or a firm that will assign another adviser? The alternative is if something happens to your adviser, then you may be out looking for another one.
So now you are your own Columbo. You have a few questions at the ready to slip into the conversation after they get to talking. Maybe after the pleasantries? Remember, you are looking for straightforward answers to the questions. No evasive stuff.
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