By: Rick Kahler | July 6, 2009 | Financial Advisors, Financial Planners
If you’re looking for a financial planner, it’s a good idea to interview several. Here is a list of questions, in no particular order, that you may want to ask the planners you interview.
1. What are the characteristics of your typical client? If a planner serves a very narrow niche, such as specializing in employees of a large corporation, and you are a small independent business owner, you may not have a good match. Ask them what types of client they do their best work with.
2. What is your education? You want to know what colleges prospective planners attended, whether they have master’s degrees or doctorates, and especially whether they have earned the CFPÒ designation. Find out if they have attended any courses on coaching or counseling or hold any certifications in these fields.
3. What is the process you use? How long does it take? What should I expect? All planners work differently, even those with similar qualifications. Don’t be afraid to ask questions as planners explain their processes. Make sure you leave with a good understanding of what to expect.
4. What are the terms of your engagement agreement? Most planners will have an engagement agreement, and all fee-only planners are required to give you full disclosure documents. If you haven’t received these ahead of time, ask for them. Ask the planners what their procedures are when clients leave them. Find out what the planners consider to be their responsibilities and what they consider to be yours. Ask about conditions under which they would refer you to another planner, an accountant, an attorney, or a therapist. Make sure each planner goes over the agreement thoroughly and that you understand all the terms and conditions. As always, ask questions.
5. What is the average size of your clients’ accounts? This information is often obtainable, even for planners who do not participate in the annual survey in Bloomberg’s Wealth Manager that lists several hundred planners and their average account sizes. Why would you ask this? Because if the planner’s average client has an account size of $10,000,000, and your account is $200,000, you may not have the best fit. The same is true if you have an account size of $10,000,000 and the planner’s average account is $200,000. Certainly, you will want to consciously explore the issue with the planner.
6. Can you give me the names of three clients I can call as references? In order to protect clients’ privacy, planners do not routinely give out clients’ names without permission. Still, be a little leery of planners who will not give you any names as references. Most planners do have several clients who have authorized the release of their names and phone numbers to prospective clients. Even if it is their mothers, their sisters, and (on good days) their spouses, all planners should be able to come up with three people who can tell you something about their character.
7. How will information be delivered and meetings be conducted if we can’t meet in person? Because of modern technology, you don’t necessarily have to be in the same geographical location as the planner. Many planners have websites where data can be uploaded and viewed easily by clients during phone conferences.
8. Will you describe what you consider to be a fully diversified portfolio? Ideally, the planner’s definition of a diversified portfolio will come close to the one found here. Asset class diversification is an important factor in successful long-term investing, and you deserve a planner who both understands and practices it.
9. How do you charge for your services? This is an essential question to ask. Some financial planners are commission-only, which means they do not charge fees to clients but earn their money solely through commissions on products they sell. They are financial products salespeople first and financial planners second. Others are fee-based, which means they operate on a combination of commissions and fees. Others are fee-only, meaning they sell no products for commission but charge clients directly for the services they provide. I highly recommend staying with a fee-only planner, who will have a fiduciary responsibility to you, the client.
One Response to “Ask Tough Questions Before Choosing a Financial Planner”
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Michael Chamberlain
July 7th, 2009 at 4:19 pm
Nice piece except I strongly disagree with #6 References.
To begin with, an advisor might have 100 clients, 90 of which think the advisor did a terrible job, 7 thought it was okay and three thought the advisor did a great job. If the advisor gave potential clients the names of those three, it would not represent the likelihood of a positive experience.
Secondly, such referrals could leave lead to an testimonial which to my understanding is prohibited.
Please see the following from the SEC;