There are many reasons you may be ready to partner with a financial advisor. You may have even narrowed down a few firms based on a quick internet search or a referral from a colleague.
Still, you may be wondering who you can trust and which advisor will be a good fit for the long haul. As with any hiring decision, learning a little more upfront will help best inform your choice. Before you commit to working with a firm, we want to share the three questions you should ask an advisor.
#1 “Are you a fiduciary?”
If the advisor is a fiduciary—a registered investment advisor (RIA), CERTIFIED FINANCIAL PLANNER™ professional, or CFP® practitioner –you’re on the right track, all though not all of these designations must act as fiduciaries. Fiduciaries have an ethical and legal responsibility to act in your best interest with a clear goal in mind: helping you succeed financially. There are important reasons you want to choose a fiduciary as your financial advisor. In general, the fiduciary model produces fewer conflicts of interest and more transparency in the client-advisor relationship.
If the advisor answers no, they may be a broker or registered representative. In this case, you’ll want to follow up with a question, such as “How will you decide what’s appropriate for me when making investment and financial planning recommendations?”
With a non-fiduciary advisor, there may be other factors, such as commissions, that could influence the products and services the advisor would recommend to you. It’s worth considering if their advice will always align with helping you reach your long-term financial goals.
#2 “How are you compensated?”
How your advisor receives compensation is a clue to the type of advice you could receive. If your advisor is a fiduciary, they’re typically a fee-only advisor, which means they’re only paid by clients. This simple payment structure favors you as the client. Without the incentive of a commission, fee-only advisors can focus on making personalized recommendations based on your goals.
On the other hand, fee-based advisors may also receive commissions or “kickbacks” based on the services and products recommended to clients. Not every fee-based advisor gives advice solely for their own financial gain, but there is an incentive to make recommendations that benefit the advisor, which could pose a conflict. Note: some fee-based planners may still be CFP® practitioners, even though they are not fee-only.
#3 “How will our relationship work?”
Financial planners vary in process and philosophy. Ask how your client-advisor relationship will look and feel today and in the future. To get an idea of what to expect, here’s what you can consider:
- Who will make the investment decisions? If you choose a discretionary advisor, you will rely on the advisor to make investment and other portfolio decisions on your behalf. You may have less frequent meetings and only periodic reporting. If you want to be more involved, you may consider selecting a non-discretionary advisor. This type of advisor gains your approval before making changes and provides feedback based on your choices in a more collaborative environment.
- Can you commit long term? Ideally, your advisor will be a lifelong financial partner and possibly someone you could refer your children to when the time is right. It’s essential to know if the advisor can serve you and your family for years to come and if the firm has a succession plan in place. Additional questions may reveal whether your advisor is approaching retirement or how processes would unfold if new advisors were to step in. For example, at CCMI, our team’s combination of experience and relative youth will allow us to serve clients and provide a seamless and consistent client experience for decades to come.
The Choice Is Yours
Advisors have the potential to guide you through exciting milestones and sensitive transitions, so it’s only appropriate for them to adequately answer these three questions before you enter into a relationship. At CCMI, we receive and encourage the same questions from our prospective clients. We’re committed to our fiduciary responsibility and providing fee-only financial planning and investment management services to individuals, families, and business owners. We also personalize plans and scale our clients’ involvement based on their preferences and goals. Visit us at myccmi.com to learn more about how we can help you reach your life dreams.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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