Before you give your life savings – or even as little as a few thousand dollars – to a financial adviser to manage, there are a lot of things you need to know about that person.
Most financial advisers are honest and they want their clients’ investments to do well, but not all of those dedicated professionals may be a good fit for you. Even if someone you trust refers an adviser to you, you need to find out for yourself if you and the adviser will work well together.
When you meet with the adviser, bring lots of questions that will help you figure that out. Here are seven you should ask:
1) What’s your investment strategy? Keep in mind that this question may trigger a lot of financial jargon. Don’t let the adviser get away with it. Ask him to explain until you understand. If he can’t —or is unwilling to — take that as a sign that you may always have trouble communicating with him. Communication is the key in any relationship, especially one that involves your money. If you feel like communication is lacking, don’t hire him.
2) Why should I trust you with my money? This is a hard question but one that must be asked. Most financial advisers will have a good answer to this question. Watch to see if the adviser is bothered by it. He shouldn’t be, especially if he’s honest. If he is bothered that you asked, find someone who isn’t.
3) How often will we meet? First of all, you should know that it’s unrealistic to expect to meet with your financial adviser more than once a quarter. Only the wealthiest clients — those with, say, $500,000 or more to invest— should expect to meet with his adviser quarterly. Clients with between $100,000 and $500,000 may meet with their financial advisers twice a year. But if you don’t meet with your adviser at least once a year — even if you have a very small account —you’re probably being neglected. Find someone who can give you more time and attention.
4) Do you work alone? There are some very good financial advisers who work alone, but you should want your adviser to be part of a team that might include assistants or other advisers because it’s unrealistic to assume that he or she will always be around when you need him. If your financial adviser works alone, as some do, ask who you would call if you need to talk with someone and he is sick or on vacation. If there is no back-up person, you might not want to hire him.
5) How do you get paid? Some might consider this an uncomfortable question to ask, but you need to know about your financial adviser’s fees, and who’s paying them. This is a perfectly reasonable question and one that most advisers expect to answer. As a rule, investors pay financial advisers a 1-percent fee for managing money. If you have a $100,000 account with a financial adviser, his annual fee is $1,000. Often the fee is lower, the more money you have with a financial adviser. Investors with $1 million or more with a financial adviser may pay a .75-percent fee, or $7,500 per year for $1 million under management.
6) May I see a copy of your résumé and what are your references? Financial advisers can’t — and shouldn’t — give you the names and contact information for their clients, but if they won’t put you in touch with former supervisors, that’s a red flag.
7) Do you have any formal complaints lodged against you? This is public information, but ask this question anyway to see if he or she will tell you the truth. You can find out about complaints by going to the Financial Industry Regulatory Authority website — www.finra.com — and click on “Investors.” When you’re at the Investors page, click on FINRA BrokerCheck, in the box on the right. From there, type in the name of a financial adviser or a firm and discover if there are complaints. One or even two complaints don’t necessarily mean a financial adviser is dishonest, unethical or difficult. Clients sometimes over-react and complain to FINRA when it’s not warranted.
After you meet with the adviser, ask yourself this question: Does this financial adviser sound too good to be true? He or she may be a skilled professional with a great track record, but if things sound too good to be true, they may be.
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