1. How are you paid?
This is an important question because the answer can determine how the advisor operates and what your experience might look like. Some answers might include:
Commission-based: They receive upfront commissions based on products they sell you. Most commonly found with insurance companies these days. One problem this presents is they aren’t incentivized to maintain any ongoing assistance to you since they’ve already received their check upfront.
Fee-Only: These advisors only receive their fees by billing you directly, either through investment accounts they manage or paid monthly from your bank or credit card. This is commonly accepted as the most transparent compensation method since you can see exactly what is billed each billing cycle. Fee-only advisors are also incentivized to maintain regular communication and planning with you, since you can leave at any time, so they need to continuously show you value.
Fee-based: This is a hybrid of the previous two models, and can get confusing for the consumer. Most advisors using this model operate similarly to Fee-Only advisors who bill directly on accounts they manage for you, however, they can also put on the commission hat and sell you an insurance or investment product that they receive an up-front commission on.
My answer: I am fee-only and can either bill transparently on your accounts for ongoing assistance & management or charge $150/hr for one-time planning engagements.
2. What are your fees or minimums?
Most people don’t know what they actually pay their advisor. If the advisor bills as a percentage of the assets managed, don’t be afraid to ask them to put it into dollar terms. If the advisor is commission-based or fee-based be sure to ask what the fees look like for those commission products they sell since there are often multiple levels of fees.
My answer: My billing/minimums for ongoing assistance starts at a $500,000 investment balance and 1.5% annually (% goes down as your balance increases above $500,000). In dollar terms, that would be approximately $7,500/year minimum.
3. How often do you communicate with clients?
One of the top reasons people leave their advisor is not having adequate communication. This will help you find what you are looking for, whether it be a more high-touch service and communication schedule or maybe not as frequent.
My answer: Clients typically see some sort of communication or value-add from me quarterly and I reach out at least once per year to set an appointment and catch up. For Full Service clients, I send updated reports about their financial plan throughout the year and meet with them in the Spring and Fall.
4. Do you have a financial plan?
Fun fact, many of the financial “advisors” I know haven’t actually created a financial plan for themselves. How can they be recommending one to you when they haven’t even gone through their own process?
My answer: Yes! I absolutely have a financial plan for my family and I analyze my finances the same as I would a client's. What I do is too valuable to not implement for myself!
5. Can you share a few details about your own plan?
You certainly don’t need them to get into the nitty-gritty, but this helps ensure they believe in what they are doing.
My answer: A part of my financial plan right now consists of contributing into Roth accounts while I’m in a lower tax bracket, and potentially switching to Traditional, or pre-tax, savings as my income rises to take advantage of the added tax savings. Several years prior to launching my own firm, I shut off all “retirement” savings and saved 30+% of my income into a savings account while I was preparing to launch my own firm. This enabled me to access the money to launch the business and not get hit with taxes or penalties. While I was in a lower tax bracket I also made sure to harvest any capital gains and lock in the gains at the 0% tax bracket.
6. How many clients or households do you currently work with? What’s your maximum?
This question will help you see how the advisor operates and potentially what level of service you can expect. Most large firms assign 300+ households to each advisor. Typically, if an advisor has more than about 100 households, they are going to be stuck being reactive in both their own business and your planning, compared to having the time to conduct research, client service, etc. to be proactive in their planning approach for you.
My answer: (As of November 2022) I am currently working with and/or in the process of onboarding approximately 15 households. I intend on working with no more than 50 households so I can go deeper and add more value to the clients I serve. Limiting the number of households I will actively serve also ensures you are getting a more personal, custom experience and you won't be passed from advisor to advisor over the years.
7. What types of clients do you typically work with or specialize in?
You want to find a firm/advisor who specializes in your demographic, problem, or ideals. These advisors will understand you and the specific issues you face at a much higher level than a generalist. Answers to watch out for may sound something like this, “we serve individuals, families, and business owners” which is just a really bad way of saying they serve everyone with no real focus.
My answer: I primarily serve two groups of people.
I specialize in helping owners NOT get killed in taxes when selling their business or real estate.
I also help professionals over age 50 to prepare for retirement and protect their nest egg.
These groups often overlap, but not in every case.
8. What’s your educational background or qualifications?
Unfortunately the title “financial advisor” is thrown around pretty loosely these days. Just passing the basic state/federal licensing exams is a pretty low bar. You want to find someone that has gone above and beyond the minimum expectations to better equip themselves to serve their clients. The Certified Financial Planner (CFP) designation is a good starting point to look for. Advisors with the CFP have a better understanding of the financial planning process and how to serve clients at a deeper level.
My answer: I graduated with a bachelor's degree in Personal Financial Planning and have gone out of my way to earning the Certified Financial Planner (CFP), Wealth Management Certified Professional (WMCP), and Chartered Financial Consultant (ChFC) designations to better my understanding of taxes, retirement, and investments.
9. What is your investment philosophy?
You want to make sure the advisor has some sort of philosophy or set of rules driving their investment decisions. Emotions affect everyone, even advisors. If you are more interested in the investing side, you also want to find a firm that aligns with your own investing values.
My answer: I have 4 pillars to my investment philosophy. To read further, see the FAQ on my website by clicking here.
- Safety First
- Markets Eventually Recover
- Invest Efficiently
- Match Your Preferences To Your Investment Strategy
10. How do you incorporate taxes into your planning for clients?
Tax planning is by far one of the most overlooked planning areas by most advisors. While you are interviewing with the advisor and going through their onboarding process, pay attention to if they ask for your tax return. If they do, pay attention to what they learn from the return and how that drives decisions in your financial plan.
If you are already working with an advisor, ask them how they can make accurate decisions, or ensure their recommendations are correctly reflected without reviewing your tax returns. Too many times I have seen certain items not be reported, or be reported incorrectly, resulting in extra taxes, penalties, and grief for the client.
The short answer is the advisor is doing you a disservice if they aren’t reviewing your tax returns. Reviewing tax returns helps your advisor be proactive in their planning and not just reacting to problems/opportunities as they arise.
My answer: I review every client's tax return annually to ensure they received credit for their retirement contributions (and no mistakes), spot opportunities in their current and future tax bracket, and plan more accurately around the timing of Roth conversions since these cannot be undone.