As with many situations in life, entering into a relationship with a financial advisor, is about asking the right questions. Our guest blogger this week, Brad Harsch of Lighthouse Strategic Advisors, shares with us the 10 crucial questions investors should always ask –
Choosing an advisor to help manage your money is one of the most important hiring decisions you’ll make. But even those who hire competent individuals for their businesses struggle when it comes to selecting and retaining the right financial advisors to grow and protect their wealth. Even the most discerning investors often don’t know which questions to ask or what the position actually entails.
These 10 questions should help you identify those advisors best suited to properly guide you on a successful financial journey.
1. What is your educational and professional background?
Look for a pattern of accomplishment and self improvement, and don’t assume that age translates to experience. Find out what licenses and registrations the advisor currently holds and for how long, what professional accreditations or certifications have been received. Most importantly, find out how they chose this career.
Some advisors will articulate an interest with economics and investment fundamentals. Others describe their interest with the impact of effective financial management on family relationships, attitudes, and personal fulfillment. You have to decide if you prefer to work with an advisor who is more interested in the markets, or more interested in helping you navigate toward your desired financial outcome.
2. What is the scope and extent of your professional services?
Find out what aspects of financial management are covered, and which are not. Make sure your advisor’s expertise and services match your needs. If you need additional services, ask the advisor to describe the collaborative process with other key tax, legal and financial professionals.
Beware a candidate who seizes an opportunity to disparage others in order to make themselves shine. Such behavior indicates that the advisor may place his needs above the ultimate need of helping you achieve your goals.
3. What is your regulatory and disciplinary record?
Don’t be afraid to ask this question and, if necessary, follow it up by contacting the regulatory authorities for additional information. Specifically, find out if the advisor has a disciplinary history, if open or current complaints exist, and if so, the nature of issues involved.
4. How are you compensated?
Many advisors hold multiple licenses and registrations. Get a clear understanding of whether you’ll pay fees, commissions, or both. Ask if the practitioner earns any compensation from third parties, also called “soft dollar” compensation. Some firms and investment product sponsors incentivize advisors for selling their products, which inherently creates a possible conflict of interest.
5. What fees and costs are not covered in your compensation?
There can be a surprising difference between what your advisor charges you and how much you actually pay. Familiarize yourself with any set-up, termination or transfer fees. Additionally, ask about annual maintenance fees or other charges that could impact your bottom line.
Check into record keeping and tax reporting services. You may incur additional expense If you are not provided with all the information you’ll need for tax preparation.
6. What is your strategic methodology and process?
Ask if the advisor has a written philosophy that guides the investment strategy. Many advisors don’t have a formal approach to investment management. If there is a formal approach in place, get a copy. Find out what it entails and how the advisor came to develop it. Ask how long the current approach has been in place and what specific ongoing processes guide your portfolio toward your stated objectives.
7. Are you a fiduciary?
Fiduciaries are held to a higher standard of care than other financial professionals and are accountable to place client’s interest above their own. If the advisor is affiliated with a Broker-Dealer, find out if his firm supports a uniform fiduciary standard of care.
Non-fiduciaries often act as a salesperson for either his firm or the product sponsors he represents, which presents an increased potential for conflicts of interest.
On a related topic, find out where and how the advisor will custody your financial assets and whether the advisor will take direct possession of clients funds. If so, the advisor must maintain a surety bond.
8. What if something happens to you?
Ask what procedures are in place should the advisor be out sick, on vacation or simply out of reach. Additionally, what happens to you and your portfolio if your advisor quits, retires, or dies?
Beyond asking the advisor how long he plans to continue in this field, get informed about and what will happen should your advisor be out of reach. And know your available resources and options in the event he sells, quits, retires or dies. Meet the staff and advisors who will be taking care of you and your portfolio should any such situation occur, and make sure you’re clear, and comfortable, with the continuity and succession plan.
9. What are advisor, staff and team member’s roles?
Find out if your advisor works collaboratively with the other advisors and staff in the firm to facilitate your professional relationship. Ask who is responsible for delivering performance reports, account statements, tax documents, scheduling review meetings, and providing timely communication with you. Find out who is responsible for conducting investment analysis, making recommendations, monitoring progress and executing your portfolio strategy.
10. Tell me about your ideal client
Although logical, it may be counterproductive to tell a prospective advisor about yourself right away. Instead, ask them to describe their typical clients. Find a financial advisor whose ideal client sounds very similar to your situation in terms of age, stage of life, and asset level. Ideally, you want an advisor who has extensive experience working with people just like you.
Facilitate a conversation based less on assets and more on the relationship dynamics. For instance, it may be helpful to ask: What’s a good client relationship look like to you? What’s most important to you and what do expect of me for a good business relationship?
When you’ve completed the interview, the final questions is yours: Do you feel compelled to move forward? Your reaction to this question should be a reflection of both the advisor’s skills and abilities, as well as their ability to connect with and advocate for you.
About the author:
Bradley Harsch is an Accredited Investment Fiduciary® specializing in strategic investment portfolio optimization. Brad lives in Sacramento, California with his wife Michelle and their five children. Brad can be reached at 916-849-5728 or
Bradley Harsch is a registered representative with, and securities are offered through, LPL Financial LLC, Member FINRA/SIPC. Investment Advice offered through Strategic Wealth Advisors Group (SWAG), a SEC registered investment advisor and separate entity from LPL Financial LLC. Tracking #1-025295