Working with an advisor can give structure to your investment portfolio. With knowledge and expertise, an advisor can help you understand complex financial decisions and create a personalized strategy, allowing you to keep more of your hard-earned money.
That said, not all investment advisors are the same, and working with someone whose values don’t align with your goals would create problems. So how do you choose the right investor? Ask meaningful questions.
Here are six questions every investor should ask before hiring an advisor:
Are you a fiduciary?
Fiduciary is more than just a buzzword. The fiduciary standard is created by the U.S. Department of Labor and the U.S. Securities and Exchange Commission (SEC). It requires investors to put the needs of their clients above their own. In simple terms, an advisor must act with prudence and care, ensuring advice is in the client’s best interests.
In comparison, non-fiduciary brokers can suggest products that are “suitable” and not exactly ideal.
Always ask if your wealth management advisor is a fiduciary to avoid potential conflicts of interest later on.
What are your qualifications and certifications?
Many investment advisors have a confusing list of initials behind their names. Regardless, it is your job to vet them. Look for professional designations like Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC). All of these credentials suggest a high level of expertise.
You can confirm an advisor’s credentials using the Financial Industry Regulatory Authority’s (FINRA) professional designations database.
What type of clients do you typically work with?
Next, vet an advisor’s previous experience, especially focusing on the clients they have worked with. Hiring an advisor who has experience working with individuals with similar goals to yours can be beneficial.
Some wealth management advisors have years of experience working with high-net-worth investors, while others specialize in retirement planning.
What is your investment philosophy?
Understanding the investment philosophy of your advisor can help you make informed decisions. Inquire about their preferred investment style. Do they focus on long-term growth? Maybe their priority is asset protection, allowing you to build family wealth.
Make sure your advisor’s style aligns with your long-term financial goals.
How will you allocate assets?
Any advisor can diversify your portfolio, but only an experienced one knows how to strategically allocate assets.
You don’t want to work with someone who’ll simply pick U.S. large company stocks without understanding their implications and long-term growth potential.
Reliable wealth managers, such as those at Creative Planning, understand your risk tolerance before allocating assets. They create a well-rounded approach so your investments can outpace inflation.
How are you compensated?
Advisors use a variety of payment structures. Some are only fee-only advisors, which means they get paid only by you. This reduces conflict of interest and ensures peace of mind.
In comparison, many advisors work on a fee-based structure — they get paid from you and earn commissions from selling products.
A reliable advisor will be completely transparent about their preferred payment structure.