What to ask a Financial Advisor – and what they should ask You!

The foundation of financial planning

The COVID-19 pandemic disrupted financial activity globally – and it continues to plague our nation. As Americans pivot to keep pace, we examine how the pandemic has affected the dialogue between financial advisors and investors – particularly, we focus on the dialogue between financial advisors and potential clients. Advisors share their thoughts about how clients and advisors can vet each other during a challenging and uncertain economic future.

What to ask your potential advisor.

Fiduciary First

Seems like a no-brainer to ask if a prospective financial advisor adheres to the fiduciary standard of putting the client’s needs ahead of anything else in the relationship. But you may be surprised as to how many financial advisors don’t follow this standard.

JR 400“We would recommend that they understand the advisor’s values and whether or not they are a fiduciary, meaning they are required to make all decisions in the client’s best interest,” said Judy Roseberry, marketing strategist at Gryphon Financial Partners based in Columbus, Ohio, when offering advice to those seeking financial advisory services.

Client Centric Processes
This is Roseberry’s second recommendation for those seeking a financial advisor.

“We would also recommend that they understand the advisor’s planning process and investment philosophy,” she said. “The individual should look for indications that the advisor’s process is client-centric, meaning that the client’s goals and objectives are the key driver of the decision-making process.”

If the answers here aren’t to your satisfaction as the client, you might be wise to interview other financial advisor candidates.

Long-term Client Relationships
If an advisor has hung a shingle out for twenty-plus years, but their longest client relationship is something like five or ten years, that raises a legitimate question: Why?

Asking about relationship longevity is a smart move for prospective clients, according to Frank Higgins and Bridget Riley, co-owners of Riley Higgins & Associates based in Scottsdale, Arizona, who responded to the question posed by Advisors Magazine.

Bridget and frank“A great question that nobody asks is: How long have you worked with your longest client?” Higgins and Riley wrote. “That is a very revealing question that tells quite a bit about the advisor and how they treat their relationships.”

If an experienced advisor answers that their longest relationship spans decades, that’s a good sign. It’s even better when the advisor responds that “X” percent – for fun, we’ll go with 25 percent – of the firm’s clients are 20-plus year relationships. And, does the advisor boast generational client relationships spanning from grandparents to adult grandchildren? If so, that’s another check in your “Yes” column for that advisor.

What an advisor should ask you.
On the flip side, financial advisors shared their thoughts with, a subsidiary of Dow Jones & Company, on what they should ask you – the prospective client – during an initial meeting.

Your Past Experience with Financial Advising

keith 1If a prospective financial advisor isn’t interested in what you’ve experienced before or the reasons you do not have a financial advisor now, you may want to question how sincere their interest is in who you are.

Keith Moeller, a wealth management advisor with Northwestern Mutual in Minneapolis, said: “This question helps the client verbalize what they’re looking for and it gives the advisor a sense of their expectations and provides an opportunity to help the client understand what they should expect from an advisor.”

Your Definition of Retirement Success

As a prospective client, you want a financial advisor who works to understand what you want out of retirement.

“I want to know where their head is at when it comes to the things they will actually be doing in retirement,” said Jeremy D. Shipp, founder and investment advisor at Virginia-based Retirement Capital Planners. “If we don’t have an ultimate goal towards which to plan, it makes it almost impossible to get started.”

Response to Market Turn Downs

A financial advisor should attempt to gauge how a prospective client emotionally reacts to market volatility.

Brian Walsh is a senior manager of financial planning with SoFi in Philadelphia. He believes an advisor should assess a client’s risk tolerance level in order to create an investment strategy that won’t panic the client. As an indicator, he asks clients how they responded to the spring 2020 stock market crash due to the COVID-19 pandemic.

“If they sold or were extremely stressed about the downturn, then they might need to be more conservative,” he said.

An advisor should determine your risk tolerance and if it aligns with their investing style.

How You Handle a Sudden or Unexpected Gain

A prudent advisor wants to know how you respond when you find yourself on the receiving end of a financial gain such as an inheritance or lottery winnings.

Did you save it, or did you go on a spending spree, or did you do with a bit of each?

Advisors want to know your mindset regarding gains because it points to your attitude toward saving.

“Saving not only allows you to invest money for the future, but it also controls the growth of your expenses so you will need to save less money to replace your standard of living when you retire,” Walsh said. “If you are dealing with a person who is a spender, you may need to build extra safeguards into their plan to ensure they stay on track. It is best to know this upfront.”

In Closing

COVID-19 and its ongoing grip on the nation’s economic, health care, and educational systems has solidified one thought about financial planning: you better do it; you better have a plan on how to navigate the turbulence created by any kind of uncertainty.

When clients and advisors ask each other the right questions upfront, you both share a vested interest in forming the foundation for a successful long-term relationship.

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