What Advisors Should Ask
When shopping for a financial advisor, you have a lot of questions. But the advisor also should ask you some very important questions to gauge your situation and establish the groundwork for a working relationship.
Taking care of your financial health is a continuous process. Life changes at a rapid pace, and it is smart to ask for help during major transitions. Too few people do. While 70% of women say they want to work with a financial advisor, for instance, only 20% actually do, according to Cerrulli Associates. Are you ready to take this step?
If you decide to seek out a financial advisor for the first time, it’s good to have an idea of what to expect. Here are five questions I think an effective financial advisor should always ask you:
1) Do you understand and feel comfortable with the fees you pay for my services? Red flag: If an advisor can’t make direct eye contact and speak calmly and clearly about the fee structure, beware. As a client, you have the right to fully understand the fee that the advisor earns for providing financial planning and investment management advice, as well as any other fees associated with the recommended products.
Mutual funds often charge management fees and loads, one-time fees for buying or redeeming your funds. If the advisor earns commission for recommending a product, you should know this, too. Transparency is the key.
2) What is your current household income, and do you expect that to change? Many advisors base their pay on a percentage of assets under management. So they naturally want to know how much clients have in assets. The advisor also needs to know this because her recommendations for how to invest those assets are very closely linked to your income stream.
A tenured professor with a steady and reliable income stream can take on more investment risk than a self-employed graphic designer with an erratic pay schedule.
3) How would you like me to interact with you? The financial services industry has a long history of focusing on quarterly communications – typically consisting of a quarterly client letter (which almost no one reads) and a multi-page analysis of your portfolio (with analytics very few people understand).
If you work with a financial advisor, make sure you work with someone who communicates with you in the language and schedule you prefer.
4) Do you have any questions or concerns about the investments I recommended?
Two standard tools that many advisors use are the risk profile analysis and investment policy statement. The former helps identify a client’s risk tolerance. The latter lays out a proposed plan of investment action.
5) While these tools have very official-sounding names and may feel set in stone, never forget that they are referring to your money. If the resulting recommendation feels too aggressive or conservative for you, you need to share that with your advisor.
6) Is there anything you’d like to know about my professional qualifications or the way I handle my own personal finances? This is somewhat controversial, but you are going to entrust your hard-earned assets to someone else to manage.
So you have a right to know what qualifies that person to talk to you about money and to get a sense of how they handle their own finances.
Working with a transparent, compassionate and qualified advisor is an essential way to take care of your financial health and create the life you desire. Managing your money doesn’t have to be difficult or overwhelming. When you collaborate with the right financial advisor for your needs, you can focus less on your portfolio and more on what you value most in life.
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Manisha Thakor is the CEO and founder of MoneyZen Wealth Management in Santa Fe, N.M. – an independent boutique advisory firm focusing on the needs of high net worth women and families. Manisha regularly shares her financial insights on her blog, and her work has been featured in a wide range of media outlets including The Wall Street Journal, Forbes, The Boston Globe, The Chicago Tribune, MORE and Glamour. She is the author of two personal finance books aimed at women, and often appears as a guest on national television. Manisha earned her MBA from Harvard Business School, her BA from Wellesley College and is a Chartered Financial Analyst.
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