Questions to Ask a Financial Planner Before Hiring Them

So, you’ve decided to hire a financial advisor. We know that people who get professional money guidance generally make better decisions about their money on a host of factors — they’re also more likely to save for emergencies and less likely to struggle with this like credit card debt.  But choosing the right person from the start isn’t easy.  Your goal (because the search process is, to be honest, a little time consuming) should be to find someone you can work with long-term.  Maybe even lifelong. That’s why we recommend being picky about your choice.

But where do you even start? First of all, decide exactly what kind of professional you want to work with.  From there, you might want to start by gathering recommendations from friends, family and colleagues — there is often nothing better than having a trusted friend recommend a trusted professional. You can also use search tools at PlannerSearch.org and letsmakeaplan.org to find a Certified Financial Planner (CFP), or you can try NAPFA.org to find a fee-only fiduciary advisor.  If you’d like a planner who is more willing to charge monthly or by the hour, check out XYPlanningNetwork.com or GarrettPlanningNetwork.com. (More on that below!) Once you have a short list of prospects, you should set up meetings with each person and get a feel for how your personalities may gel. Note: Your initial consultation should always be free.

Once you’re sitting across the table (or on Zoom with one another, here’s a look at the top questions you need to be asking.

Question: Are You a Fiduciary?

It’s important to know that some advisors and brokers offer investment advice that isn’t always in their client’s best interest For example, they might recommend an investment that pays them a higher-than-necessary commission, even when there is a comparable investment option that would cost their client less. Advisors that abide by the  “fiduciary standard,” on the other hand, must always put their client’s interest before their own. With a fiduciary advisor, you know there are never any conflicts of interest when it comes to the advice you’re getting.

Note: You should also check up on a prospective advisor’s disciplinary record with the CFP Board or by using the broker check tool from FINRA. You can also visit CFPBoard.net to see if your advisor has been verified (or even disciplined) by the CFP Board by typing in their name, company and where they practice.

Question: How Do You Get Paid?

Paying your financial advisor isn’t as simple as paying your barista. And while you may not be comfortable with “How do you get paid?” as the first question out of your mouth, it should come early on in the process. You need to know how your professional gets compensated. It happens in one of four ways:

• Hourly. Some advisors are paid by the hour, or they can be paid on a monthly basis (like a retainer). You and your advisor could discuss their hourly rate and what they can accomplish within your budget.
• Flat fee. Some advisors charge a flat fee, or a set payment based on the specific services they’re performing for you. For example, they might have a list of services they offer (like creating a financial plan) with corresponding fees for each.
• AUM, or “assets under management.” Some advisors charge you a percentage of the assets they manage for you. The industry average fee is around 1%, but this can be more or less depending on how much money you give them to manage. (Generally, the more money they’re managing for you the lower the percentage fee will be.)
• Commission. Finally, there are some advisors who earn commissions on the investments and products you buy.  Make sure you understand the size and amount commissions or fees baked into the investments you’re purchasing.  It may not feel like you’re paying them, but you are.

To complicate matters, some advisors may even have a hybrid of these compensation options, so don’t let different payment methods stop you from comparing dollar to dollar. It’s important to keep your total annual cost in mind, so spend some time doing the math and see what you would be paying per advisor, per year, before you hire anyone.

Question: What Can You Tell Me About Your Client Base?

It’s wise to ask about the advisor’s specialties and their diversity when it comes to clients. Do they typically work with entrepreneurs, small-business owners, or manage assets as large or modest as yours? This will give you a read on what your advisor is used to dealing with, and where their expertise may lie. This is particularly important if you work for a large company with a complex benefits structure.  You’re going to want an advisor who has dealt with it before. If they’ve never worked with someone in your exact situation, don’t immediately be put off — talk to them for a while and see what their guidance looks like before you make a decision.

Question: What Kind of Guidance And Financial Plan Can I Expect?

A good advisor will create a plan for you that’s informed by their years of experience and their understanding of the market — as well as your goals and risk tolerance. Their plan may align with the one you were considering, or it may differ greatly. So before you tell them your preferences are set in stone, ask them how they would go about achieving your objectives. You might phrase the question as: What form will my financial plan take? The goal here is that you get an understanding of their technique and method so you know what to expect.

Question: What’s The Best Way to Reach You?

Ask your potential advisor if they prefer email, phone, Zoom, or in-person meetings. What mode of communication do you prefer? If you have a quick question, can you text them? If, for example, you’re only available for phone meetings on Tuesdays after 5 p.m., you should ask if that time constraint will work with their schedule. You’ll want to know the best way and time to get in contact with your advisor, so you’ll feel supported.

Question: How Often Will I Hear From You?

Depending on your preference, you may want to chat with your new financial advisor once a month or a few times a year. The important thing is that you solidify a cycle of communication so you’re getting the consistency and guidance you need. Also, if you expect same-day responses, ask your advisor how quickly he or she will get back to you when you need something. We all need an advisor who will see us as a priority, and respond to us when we need them. (And, if your advisor works on a team you’ll also want to know if you’ll be hearing from them directly or an associate.)

Once you start working with an advisor, pay close attention to the circumstances under which they contact you. An advisor should be checking in with you about your financial goals.  Ideally, you and your advisor will connect whenever there’s a need to make a tweak to your financial plan, or whenever you have a life event like a new baby, a divorce, or buying a home. And of course, there’s nothing wrong with checking in every now and then to say hi.

Finally…although these are excellent questions to ask, you want to be sure that you’re not the only one asking questions.  One sign of a good advisor is that they’re a good listener.  So, particularly in that first meeting pay attention to whether they’re asking sufficient questions to get an idea of your wants and your priorities.  If they’re doing all the talking?  That’s not a good sign.

Reprinted from Jean Chatzky September 2023