You have to ask the right questions. You have to know good answers (benefit you) from bad ones (damage you). And, you have to require documentation for all responses that will influence your selection decision.
There are four categories of questions: Credentials, Ethics, Business Practices, and Financial Services. Following are a few key questions for each category.
Credentials
All advisors claim to be experts. Where did their expertise come from?
- What are your years of financial advisory experience?
- Do you have any college degrees?
- Do you hold any current industry designations?
Tip: Go to Paladin Registry – Check a Credential to check the quality rating for their designations. Some advisors buy fake credentials to look more knowledgeable than they really are.
Ethics
All advisors claim to be trustworthy. What else would they say? How do you validate they are really trustworthy?
- Do you have any complaints on your compliance record?
- Have you ever made restitution to a client?
- Have you ever been suspended from the industry?
Tip: Go to FINRA – Broker Check to verify their records of compliance with industry regulations.
Business Practices
This is the trickiest category of questions. There are several types and combination of business practices.
- How are you compensated for your advice and services?
- How frequently do you meet with your clients face-to-face?
- Do you provide a performance measurement report?
Tip: If the financial advisor charges a fee his principal ongoing services include personal meetings and quarterly performance reports.
Financial Services
You should know the services you are seeking so you select an advisor who provides those services.
- Do you provide financial planning advice and services?
- Do you provide investment advice and services?
- Do you provide insurance advice and services?
Tip: Make sure you ask who provides the services. Financial advisors may say they provide a service, but they outsource the work to a third party.
Documentation
Advisors do not have mandatory disclosure requirements for a reason. Most of their information is verbal and there is no written record. This benefits weak advisors who use sales skills and undocumented claims to win your business. It damages you because you base your selection decision on bad information.
Tip: Your solution is a written record. Trust what you see, not what you hear.