7 Powerful Questions To Ask a Financial Advisor in First Meeting
What is a financial advisor’s most valuable asset?
It’s not investments, taxes, saving strategies, and financial plans. It’s not their patented system or other methods.
All of those things can be taught, learned, and achieved through certifications, degrees, and other resources.
A financial advisor’s most valuable asset is something much simpler than a tax plan yet much more difficult to find and nurture: trust.
Trust is the foundation of a strong financial practice. When you work with an advisor you trust, you know that your needs always come first. In addition, you have confidence that they care about you, your financial goals, dreams, and aspirations.
It's not easy.
Prior to leading Covenant Wealth Advisors, I spent over eleven years consulting financial advisors on investment strategy and practice management.
I've met thousands of financial advisors across the country. Some were great. But many were not. Many of these advisors were trained to be great sales people but lacked the skillset necessary to help their clients across many different financial situations.
On the flip side, I've also met some incredible advisors who I would trust with my own parents, friends, and family.
Today, I'd like to share a bit of wisdom to help you find the right financial advisor for you and your family.
Want a comprehensive list of questions to ask a financial advisor? Download our comprehensive list of questions here.
My goal is to help guide you toward working with someone who will treat you with respect, integrity, and competence. The first step in establishing a trusted relationship is to ask the right questions the first time you meet an advisor.
In short, every financial advisor you interview should be asked these questions. And be sure to read to the end to learn about the best question to ask a financial advisor before you hire.
Here are 7 powerful questions to ask a financial advisor in the first meeting.
1. Are you a fiduciary?
As you search through advisor profiles, you have probably encountered this emphatic financial buzzword. "Fiduciary" is often plastered on advisor websites and marketing materials, but what does it mean and how do you know if an advisor adheres to that standard?
The fiduciary standard was created by the SEC and stipulates that advisors who uphold it are required by law to put the needs of their clients above their own. Built on a foundation of duty, loyalty, and care, this standard was designed to enhance the client experience and ensure advisors upheld the needs of the client first and foremost.
Another goal of the fiduciary standard is to limit or clearly express any conflicts of interest. A financial advisor who is a fiduciary needs to clearly state any conflicts of interest should they arise. This is important because conflicts of interest may limit an advisor’s ability to act in the client's best interest.
Sounds simple, right?
Yet once you dig into it, the fiduciary standard is anything but straightforward. This is because there isn’t a clear method for upholding and adhering to it.
It is important to know that not all advisors are fiduciaries and many may serve as a fiduciary for one element of the relationship, but not in others.
For example, many advisors market themselves as fiduciaries but also serve in a dual capacity under a lesser standard of care called the suitability standard.
The suitability standard was created for brokers and dealers and stipulates that their recommendations must be simply suitable for the client. In other words, advisors working under the suitability standard are only obligated to recommend products that are a suitable solution for you, but may not be in your BEST interest.
Imagine if your son or daughter said they were getting married to someone who was simply “suitable” for them, but not necessarily best for them!
So how do you know if your advisor is a broker operating under the suitability standard or a pure fiduciary?
To find out, visit the Broker-Check website.
For example, when you search for my background, you’ll notice that I am a “Previously Registered Broker”.
However, now, I operate as an “Investment Advisor” which means that I am required by law to always put my client's interests first.
Alternatively, here is a search for a random Wells Fargo financial advisor from the Broker Check website:
In this example, the advisor is a Broker and does not operate under the fiduciary standard of care. This person also has a compliance disclosure!
Imagine going to a doctor who recommends a specific drug to make you feel better.
Later, you find out that the doctor was paid by the pharmaceutical company to recommend that prescription. Even worse, another less expensive drug was available but the doctor didn't recommend it because he wasn't paid a commission for selling it.
How would you feel?
This would be a lapse of fiduciary duty. But brokers or non-fiduciary advisers do that all the time when they sell a product that is suitable for you, but not necessarily in your best interest.
What's the bottom line?
The fiduciary duty should be an integral part of your conversations with potential advisors.
Here are some follow-up questions you can ask an advisor before you hire to ensure that person is indeed a pure fiduciary:
Will you sign the fiduciary oath?
How do you uphold the fiduciary standard in your business?
Do you apply your fiduciary commitment to every part of your business? (investments, planning, etc.)
Are you a registered representative? If so, then they are a broker too.
2. What are your personal or firm values?
When was the last time that you had a meaningful relationship with someone without a shared sense of values?
Working with a financial advisor should be no different. After all, you'll be sharing some of your most personal feelings, stories, and ambitions over time. You'll likely feel a lot more comfortable doing that if your financial advisor shares similar values to you and your family.
While asking this question may feel a bit uncomfortable at first, the most genuine financial advisors I've met over the last two decades should be excited to share their answer.
For example, here's a quick video on one of our core firm values, gratitude.
At Covenant Wealth Advisors, our goal is to hire team members who share similar values. This creates a sense of community, trust, and a meaningful desire to work with each other day after day.
More importantly, strong values may help guide your financial advisor when the answer to tough questions isn't always black and white.
For example, we are driven by the following values:
Make it Happen Attitude
Family and Relationships
Values aren't the only factor in finding the right financial advisor, but I believe a shared sense of values is a must when it comes to long-term relationships.
3. What is your fee structure?
Another reason financial planning can get murky is through advisor fees and compensation.
Many advisors don't disclose their fees through their website. That's a major problem and reeks of a lack of transparency.
That's why our fees are prominently displayed on our website. After all, how can you trust an advisor if they don't even tell you how much they are paid.
The truth is that there is a whole slew of ways advisors get paid and it is important that your advisor clearly articulates and illustrates their fees so you know exactly how it works.
After all, good investment advice is never free.
Your financial advisor should be compensated. But how they are compensated can create conflicts of interest.
Let’s go over a few of the basics on how a financial advisor can be compensated.
Also known as a flat fee, this structure is a pre-arranged price for a given solution. For example, an advisor could say that the creation of a financial plan is $5,500.
This fee is relatively straightforward and stipulates that the advisor is paid at a certain hourly rate for the work they provide clients.
Assets under management (AUM)
A common investment fee, AUM is an annual fee levied as a percentage of the investments managed for a given client.
Advisors can receive commissions on common financial products like annuities, mutual funds, insurance, and more. Be sure you know if your advisor is receiving a commission on the products they recommend.
But advisors often use multiple fee structures based on the service provided.
For example, at Covenant Wealth Advisors, we have a range of fees depending on the type of work we do for our clients. We charge a fixed fee, hourly fees, or fees based on assets under management if we manage your investments.
But our team takes pride in the fact that we are a fee-only firm. This means that we never receive commissions and are only compensated directly from our clients. This reduces conflicts of interest and better aligns our interest with yours.
In a recent study by the CFA, 84% of responders said that full disclosure on fees and costs is a determining factor in developing a trusting relationship with advisors and yet only 48% felt that their advisor was holding up their end of the bargain.
It is important that your financial advisor clearly be able to discuss their fees so you don’t receive a surprise bill at the end of the month/quarter/year. It also helps you understand the type of service you receive for the fee you pay.
4. What is your investment philosophy?
Investments play an important role in your overall financial health and you want to work with an advisor who uses methods you are comfortable with. The thing to watch out for here is that the advisor has a clear, evidence based strategy that can be clearly communicated.
They should be able to clearly articulate their investment philosophy, strategy, and principles using evidence based methodology. If this isn’t the case, they might be operating the investment side based on a hunch rather than academic research.
For example, our investment philosophy is as follows:
Don’t try to time the stock market
Invest for the long-term
Diversification is key
Keep costs low
Keep taxes low
Don't invest based upon media headlines
Here is a bit more detail on our core investment principles:
We are passionate about educating clients about our investment philosophy because we believe that when you understand how and why you are invested, your probability of success increases through improved discipline.
5. How will we work together?
Before you commit to an advisor after the first meeting, you should know their process for interacting and engaging with clients.
This is a chance for you to learn more about their process, systems, communication style, and overall business operations. A few additional questions you can ask are:
What will be covered during our personal financial planning meetings? Will you help me with budgeting? With retirement planning? Tax planning?
How does the financial planning process work?
Can you put your financial services in writing?
How often will we meet?
How often will you reach out to me?
These questions will help you understand how your financial advisor will work with you and if that system is good for you.
Are they able to meet virtually?
Are they flexible in terms of changing needs, goals, and priorities?
How do they set up your financial plan?
Is your plan comprehensive?
There are so many valuable insights you can glean by knowing the right questions to ask a financial advisor in the first meeting.
6. What are your credentials?
Many industries are filled with designations and professional certifications and the financial services industry is no different. Each designation can differ in both the difficulty of achieving the designation in the first place and the level of continuing education requirements that must be maintained over time.
This is important because financial planning strategies can change over time due to changes in law or advancements in research. It's important for your financial professional to focus on continuing education because that may lead to increased knowledge.
Common credentials and memberships may include:
Certified Financial Planner (CFP) = 30 hours of continuing education every 2 years
National Association of Personal Financial Advisors (NAPFA) = 60 hours every 2 years
Certified Public Accountant (CPA) = 120 hours every 3 years.
7. What is your net promotor score?
What if there was one number that helped assess the average client experience of a financial advisor?
Sound too good to be true? Well, I have good news.
There is such a score and it's called the Net Promotor Score® or NPS®.
The Net Promotor Score® is used to assess the experience of customers across many different industries and many great companies including Apple, Ritz Carlton, and American Express.
For example, take a look at the chart below which illustrates the average net promotor score by industry for 2021.
The average net promotor score for the brokerage/investments industry is a 49.
What if your financial advisor had a Net Promotor Score® of 30? Wouldn't you want to know?