Asking the right questions wrong

Usually, the content of my monthly submissions focuses on my philosophy regarding financial planning, current events, the state of my practice, or other topics targeted at my current client base or prospects. This month I am going to submit a topic directed to individuals on my listserv not currently in my practice who might be in the market for a financial advisor. I am going to explore the questions that should be asked during the search for a financial planner. A variety of websites online provide a list of ‘must ask’ questions during the initial phase of the planning process. I am going to use this article to dissect the questions I see most often, and give my take on how those questions should actually be asked to get the information you need to make a decision about hiring the person. The goal is to get as much information as you can, which is personalized to your situation, without wasting too much time. Whether you are considering me or another professional, or you are one of my current clients that need to back track on your due diligence, here is my submission on how to get the information you want to acquire by using the right language. I present to you the five must common ‘must ask’ questions when picking a financial advisor and what I recommend you ask instead. Question #1: Are you a fiduciary? Instead ask: How do you get paid? The ‘are you a fiduciary’ question is the most common question I am asked of late. However, the question as it is asked is useless. Anyone who has taken a journalism class knows you should never ask a yes or no question, because (ironically) if a person is not a fiduciary they are under no obligation to tell you that and can just say yes to appease the questioner. In the financial advisory industry the idea of being a fiduciary, in other words putting your clients’ interest before your own, boils down to how the client's decision affect how you get paid. By asking the financial planner how they get paid you're asking him or her how they're going to be compensated for the decisions you make. The less the payout varies from the decisions you make the better. For example, as a fee-only advisor, the decisions that my clients make have little to no effect on income. A financial advisor who gets paid by commissions from the sale of financial products might be swayed to sell a product with a higher commission, regardless of whether or not it's in the client's best interest. The goal of the recent fiduciary rules is to lessen the financial conflict of interest. Asking how the person gets paid can flush out if that conflict of interest exists. Question #2: What rate of return have you been able to achieve with your clients’ accounts? Instead ask: How do you select the investments you use for your clients’ accounts? The reason I want to alter this question is because how well the financial advisor has done in the past is no implication that they're going to have similar results in the future. Moreover, returns is only one of many variables needed to determine if an investment strategy is successful. It is more important to understand how the financial planner chooses an investment strategy based on what the client is trying to accomplish. A good financial advisor, in my opinion, will give an answer that highlights his/her interest in helping the client accomplish their goals while minimizing risk. Rate of return is only a small piece of the puzzle to help a client reach the plateau that they are trying to reach. Other variables that planners need to consider are investment risks, longevity risk, political risk, and so on. How a financial planner approaches these risks varies from client to client and providing a single rate of return provides little insight. Question #3: What services do you provide? Instead ask: Which aspects of my finances do you think you can provide help? Obviously the biggest benefit of this alternative question is that it personalizes the answer for your specific situation. It's very easy for a financial planner to rattle off the tenets of financial planning to answer the original question. However by personalizing the answer for your specific case you will get an idea of exactly what your relationship with that financial planner would look like. Obviously the first victory will be if the financial planner can answer the question touching upon aspects of your finances that concern you, so you will recognize that the service will actually be beneficial to you. Additionally the financial planner might (actually should),mention aspects of your financial plan that they have concerns that you may not have ever considered. This will shed light on how the service will go above and beyond your expectations. Question #4: How often will we meet? Or: What can I expect in the first year of working with you? Instead ask: How often will I hear from you and how often can I contact you? Financial Planning is a long-term relationship which is more than just meetings. Asking what you can expect might lead a financial planner to explain a generic financial planning timeline. Again, the key is personalization. By asking how often you will touch base with the financial planner this will give an idea of exactly how much time and effort they put into their clients’ cases. There is no right answer but obviously more is better, and you need to use your gut to determine if you like the answer that you were given. Additionally, it's important to know how available the financial planner will be to you. A financial crisis, whether personal or universal, can happen at any time. How can you contact him or her when these events happen and how easy are they to get a hold of when you have concerns? This may not seem important at an initial meeting, but availability might be the biggest value-add a financial planner can give to clients. Question #5: Do you have a ‘succession plan’ or ‘business continuity plan’ ? Instead ask: What kind of access do I have to my funds if I invest with you? These plans are a detailed description of what happens if the financial advisor isn't available (whether due to time off or if a catastrophic event occurs). A business continuity plan is a state and federal requirement. For a client, knowing exactly what strategy a financial planner has in place to keep the practice going in the case of an emergency is not the important detail. Instead, keep it simple, and ask what access you will have to your accounts, account statements, and the ability to trade in your account if you decide you want to do so. A good and well organized financial planner and underlying firm will give clients the ability to access their accounts with ease, have phone numbers to call account custodians, or additional contacts clients can access with ease in the absence of their financial planner. While clients might want nothing to do with the administrative and investment side of their accounts they most certainly want to know how to access them when needed. The answer to this question should satisfy any concern about your funds always being within your reach. The take away concept is to ask questions that simplify the answer, but still require details, to give you insight about how the financial planner works. Trust your gut when you hear the answers and if they make sense to you and you have positive reaction, that financial planner might be right for you. If the answers give you pause ask again, clarify you question, or move on. And to my clients who aren't sure they know the answer to any of these questions, in regards to my practice, get in touch with me immediately! In my practice, the answer to question #4 part two is ‘always’!

1 view
Blue Sky Financial Group
3478 Buskirk Ave. Suite 1000
Pleasant Hill, CA 94523
925.719.9297
  • LinkedIn
  • Facebook
  • Twitter
Want more information?

© 2020 by Blue Sky Financial Group, All Rights Reserved

ADA Compliance Policy: Blue Sky Financial Group is committed to providing a website that is accessible to the widest possible audience, regardless of circumstance and ability. We aim to adhere as closely as possible to the Web Content Accessibility Guidelines (WCAG 2.0, Level AA), published by the World Wide Web Consortium (W3C). These guidelines explain how to make Web content more accessible for people with disabilities. Conformance with these guidelines will help make the web more user friendly to everyone. Whilst Blue Sky Financial Group strives to adhere to the guidelines and standards for accessibility, it is not always possible to do so in all areas of the website and we are currently working to achieve this. Be aware that due to the dynamic nature of the website, minor issues may occasionally occur as it is updated regularly. We are continually seeking out solutions that will bring all areas of the site up to the same level of overall web accessibility.

If you have any comments and or suggestions relating to improving the accessibility of our site, please don't hesitate to contact our accessibility coordinator, Greg Gorski, at blueskyfinacialgroup@blueskybayarea.com. Your feedback will help with improvements.