Financial advisor is a diverse term that can mean a variety of different things. Finding an advisor can seem overwhelming, but having a few pointed questions to ask a potential advisor (or your current advisor) can help you ensure that the advisor is a good fit.
Financial advisor is a broad term that can encompass a variety of different educational backgrounds. Don’t be afraid to ask your advisor (or potential advisor) for some information on their education and what their designations mean. Each designation implies a different area of knowledge, such as portfolio manager or insurance advisor.
No two advisors work exactly the same. It is a good idea to get a clear picture of exactly how your advisor works.
- Do they believe in passive or active management?
- Are they tactical or strategic?
- What is the research behind their strategy?
These are all questions to ask your advisor as this directly impacts your money.
Support Staff and Strategic Professionals
Investment offices often have a team of people working behind the scenes and these people are equally as important to you as a client as your advisor is. Ask your advisor who their team is and how each of them will (or if they will) be involved with your accounts and financial plan. Also ask about trusted professionals in other areas, such as tax, wills and real estate – to name a few.
How They Get Paid
There are generally three ways advisors get paid:
- Embedded Fees. Embedded fee advisors (also called commission based) are paid by the investment firm that your money gets invested in. This usually means a set fee that is established by the funds you are invested in.
- Fee-based. This means that you and your advisor will negotiate and agree upon an annual fee that you will pay them to manage your money for you.
- Fee for Service. Your advisor provides you with advice only and cannot manage your money or offer you any financial products.
It is essential you understand how you are paying your advisor as this has a direct impact on your accounts and the types of service you receive. Each compensation structure has its pros and cons so make how your advisor gets paid works best for you. Your financial advisor should be a long-term relationship – be sure to ask the right questions and know the extent of the services they can offer you.