Meeting with the person who will be managing your money is important for a number of reasons, not the least of which is to determine if you have the right chemistry with the person who will be making decisions for your future. The following short list should be part of your objective when you meet with the advisor:
- Determine how long have they been in the business, does this seem sufficient to you?
- Does the firm have a proprietary investment management system or do they farm out their management of your assets? (Farming out the assets usually means higher fees)
- Are they state registered? SEC registered?
- Can you talk to some of their current clients, or get references?
- What are the services available to me through their firm? (Financial Planning, Estate Planning, Educational Planning)
- How do they invest the money? Do they use mutual funds solely, or do they use only individual securities, ETFs, or a combination of all of these?
- How often do I receive feedback on how I am doing? How do you determine how I am doing, do you compare my returns to a specific index, or a group of indices?
- What will be the goal of managing my money, will it be achieved if I have a specific percentage return every year, will it be achieved if I have a specific Net Worth at the end of the year, how will I know on an ongoing basis if my goal is being achieved?
- What are the fees of managing the money over and above the management fee that I pay to you the advisor? Are there mutual fund management fees, are there ETF fees, what are the commissions?
- Does the manager of your assets have a fiduciary responsibility to you the client?
Ask the Financial Advisor how he/she gets paid?
Financial advisors usually are paid through fees, commissions, sales charges, back-end fees, achieving specific product sales levels, bonuses for retention of assets, client satisfaction levels, peer performance, financial plan fees, trailers, or a combination of all of these.
Most financial advisors are employed by the firm that they work for to advance the goals of the firm, not the client. Failure of the financial advisor to achieve specific levels of sales may result in the dismissal of the financial advisor. Every effort should be made to avoid this situation as conflicts of interest in the financial securities business almost always means that the investor is on the short side of the result. There are exceptions to the above. Finding those advisors that communicate conflicts of interest to their clients may be the proverbial needle in a haystack.
Regardless of how the financial advisor gets paid, an investor should ask the financial advisor this question before becoming a client, Is your compensation directly tied to what I buy or sell?