Hiring a Financial Advisor? Ask these Questions First
You’ve decided to hire a financial advisor. Now you find yourself sitting in an armchair in the investment firm’s waiting area. And you just can’t shake the feeling that you’ve forgotten something.
The financial advisor emerges through a door, smiling. She invites you into her office for your initial meeting. From across her desk, she asks, “What questions do you have for me?”
There it is. That’s what you were forgetting.
If you’ve never hired a financial advisor before, the process can be overwhelming, even a little intimidating. How do you know if you’re choosing the right one? Is there a way to know if they’re any good at their job? Even knowing the right questions to ask can feel daunting. After all, you’re no financial expert. That’s why you’re sitting across the desk from this financial advisor, seeing if she’s the right fit for you, but drawing a blank on what you’d like to know.
Well, fear not. We’ve got 5 tips from a financial advisor on what questions to ask before you decide to hire one:
1. How are they compensated?
No financial advisor is doing their job out of the goodness of their heart. It is a paid profession, and it behooves you to ask how, exactly, the advisor you’re interviewing earns their income.
There are 3 main ways:
Commissions
Flat Fees
Fee-Based (percentages)
Depending on how they get paid, their approach to your account will vary — ranging between selling you products that manage your portfolio, to a hands-on, active management approach. We’ve written extensively on the difference between these types of compensation.
2. Are they independent or captive?
Captive advisors are, as the name implies, beholden to the broker-dealer firms for which they work. Their job is to match the client with the firm’s product that is most “reasonably” suited to them. For this service they make a commission. There is an intrinsic conflict of interest – do they do what’s best for the client, or what’s best for the firm?
In order to get paid, they must sell. That makes the firm their boss — not you.
In the colorful words of NEST’s investment manager, Sean McDougle, “Independent advisors do whatever the hell they want.”
Because they are generally fee-based, their income is in direct proportion to the health of your portfolio. That means they work for you to grow your investments. And the better you do, the better they do.
3. What are their credentials?
You know, those fancy letters at the end of people’s names? Sometimes they really mean something. If you’re going in for a surgery, you want the surgeon performing it to have that M.D. behind their name.
Similarly, when you’re hiring a financial advisor, look for designations showing your candidate has gone back to school post-bac and studied something specific to their area of expertise — or they have equivalent qualifying experience (which can sometimes be better).
Some of the most respected designations include:
Be wary of inflated or misleading titles. And remember, letters alone don’t guarantee competence — ask about their experience too.
4. Do they charge for financial planning?
There’s no such thing as a free lunch. And if you can’t even get a club sandwich without strings attached, you sure as heck aren’t getting financial advising services for free.
Some advisors tout “free” financial plans to get you in the door, but they make money through back-end commissions.
If you’re getting the service for free, they’re not working for you. You’re not the boss — you’re the mark.
You want transparency. Financial planning takes time and expertise. Advisors who charge up front for it are often the ones actually focused on your success.
5. What’s their investment philosophy?
You might read this and think, “I wouldn’t know a good investment philosophy from a bad one.”
So be on the lookout for phrases like “set models,” “modern portfolio theory,” “60/40 model,” or “static portfolio.” These usually mean your investments are being placed in a pre-set strategy and left alone — not actively managed.
At NEST, we use a hands-on approach supported by tools like Hedgeye and Quill Intelligence. We don’t rely on recycled models or mainstream media spin.
Bonus Question — Do I vibe with this advisor?
Ultimately, trust your gut. Are they really interested in your goals — or just in your money?
Now you’re really ready to start interviewing financial advisors. You’ve got a list of questions and a better understanding of what you’re looking for.
Why not schedule a no-obligation call with NEST? We are ready and eager to answer your questions.
At NEST, we are passionate about helping Austin, Hill Country, and Texas-based individuals, families, and entrepreneurs plan for their futures, and thrive in the now. Reach out to us at info@nestfinancial.net.
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DISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.