If you're working with an advisor, or are considering it, you may have run across lists of questions to ask before signing on the dotted line.
These questions can provide some food for thought, but are they really useful in practice?
For example, most lists suggest that would-be clients ask if an advisor is a fiduciary. Adherence to a fiduciary standard means an advisor acts in the client's best interests.
However, many clients are more comfortable emphasizing the personal chemistry with an advisor, rather than whether his or her recommendations are made from the fiduciary standard or the less-stringent suitability standard.
The lists often suggest asking about licenses and credentials. These credentials typically mean an advisor has taken the time to acquire knowledge and pass an exam, or series of exams, to get a particular certificate. In addition, ethical requirements frequently go hand-in-hand with these credentials.
But simply having some letters after his or her name says little or nothing about an advisor's personal characteristics : Is he or she someone with whom you feel comfortable sharing intimate data? Does he or she have experience working with clients in situations similar to yours? Credentials, while not a bad thing at all, give no indication that an advisor can design the most appropriate portfolio, retirement plan or tax strategy to meet your needs.
That doesn't mean clients shouldn't ask advisors questions. It's imperative to do some homework when selecting a financial partner . But, some advisors say, don't let the cookie-cutter questions from the checklists divert your focus from potentially more important considerations.
"We are huge fans of transparency, but not of a lot of the checklists," says Adam Nugent, president of Foresight Wealth & Risk Management in Sandy, Utah.
"There are a lot of advisors with great credentials and degrees that are lousy advisors. There are others with no credentials or even degrees that are incredible. A standard checklist typically doesn't emphasize what clients or types of clients a particular advisor is working with. It's very impersonal," Nugent says.
He adds that hiring an advisor simply based on credentials is akin to hiring an employee based on reading a resume, without ever meeting in person.
"Having hired a lot of people, I can testify in the power of getting to know someone, regardless of what their resume says or doesn't say. Sometimes the best hires are those with no experience at all. I'm not suggesting hiring a brand-new advisor, but I am suggesting getting to know potential candidates regardless of how they fill out the questionnaire," Nugent says.
Eric Nichols, president of Educated Wealth Strategies in Bethlehem, Pennsylvania, says clients should take an advisor's areas of specialization into account.
He recommends asking how much experience an advisor has working with clients in your particular situation. "This should be a priority because some advisors have specialties. An estate planning advisor may not be the most appropriate advisor for a young family just starting out, just like a podiatrist may not be the most appropriate health care professional for your heart condition," Nichols says.
Nichols' firm specializes in serving teachers, administrators and school employees. He recommends asking whether an advisor offers asset-management services , represents an insurance carrier or both, as an advisor's credentials may not indicate the services offered.
"Is the advisor simply going to provide asset management for you or provide insurance services? Is the advisor going to provide financial planning? It is best to get a good idea of the scope of the offered services and the scope of the client/advisor relationship so you can best understand what to expect," Nichols says.
Increasingly, advisors are aware that client service and retention goes way beyond crunching numbers. According to a 2013 survey by Financial Advisor magazine, issues related to communication and service were the top reasons clients left advisors.
Joe Duran, CEO of United Capital in Newport Beach, California, and author of "The Money Code," says clients should not overlook the emotional components of the advisor selection process.
"When choosing an advisor, think of finding a financial life manager. Their job goes beyond investing your money. A good advisor invests your money efficiently, and great advisors do three things: They help you to improve your entire life, they help ensure your money and investments are sufficient to live the life you want and they help protect you from unexpected surprises throughout your life," Duran says.
"It's not about the monthly statements, the spreadsheets and stocks or exchange-traded funds we choose, it's about the big financial choices we make every day," he says. "It's important that your advisor understands what really matters to you and what you want your money to help you do."
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