10 Things to Ask

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TEN

10 THINGS TO ASK

BEFORE HIRING A FINANCIAL ADVISOR

1

How long have they been in the business? Experience is probably the most critical element in choosing a financial advisor. Ask them how long they have been in the business and the number and types of companies with whom they have been associated. An advisor who has not experienced at least two market cycles probably does not have enough perspective. Personally, I would not hire a financial advisor that has less than 10 years of experience managing clients assets. A potential advisor may have years of experience as a CPA, or in

the mortgage or banking industry, but that does not mean they have enough experience as a financial advisor. Many professional industries require internships and apprenticeships before one can be recognized as a professional, but currently the financial services industry does not have such a requirement.

2

What education, training, and professional designations do they hold? An advisor should have an appropriate amount of education and business experience. While a business degree is not

required, an advisor’s level of education is important. The term “financial advisor” is used by many financial professionals. Ask the advisor what qualifies them to give financial planning advice and whether they hold a financial planning designation such as the Certified Financial Planner ™ Practioner (CFP)™ or Chartered Financial Analyst (CFA) designations. Look for an advisor who has proven experience in financial planning topics such as insurance, tax planning, investments, estate planning, and retirement planning. A professional designation shows a dedication to the profession and the ability to pass detailed examinations,


AS SE T MA NAG EME NT

and participation in ongoing professional development. If the advisor holds a financial planning designation or licenses, check his/or her background with the FINRA, AIMR, CFP Board or other relevant professional organizations.

3

How many clients do they serve? When you hire an advisor, ask how many clients they service. Different advisors will be able to handle different numbers of clients based on the depth and complexity of their services. While there is no magic number, I believe it becomes more challenging to give adequate attention to individual clients needs when one serves more than 100 clients. This attention includes quarterly account reviews, active portfolio management, and timely reallocation of your portfolio. Advisors with higher number of clients often tend to be transactional in nature and focus on commission-based products.

4

How are they compensated? The key here is to listen for an honest answer. A financial advisor should be willing to explain all fees, and explain all other forms of compensation you might derive from implementing the recommended investment plan.

Answers such as “my company pays me,” or “you won’t pay anything out of your pocket” should not be accepted. Common sense tells you that a person’s primary loyalty will be to the hand that feeds them. Ask if they receive compensation from insurance companies, mutual fund companies, or any other third parties. If the advisor is paid by fees from you, as in the case of a fee-only financial advisor, then they will have an incentive to provide advice and service that is in line with your goals. You should be suspicious of highfee products, such as variable annuities, equity linked notes, and market-linked Certificates of Deposit. Ask the advisor if they charge a flat fee, an hourly rate, or asset-based fees. Then ask what percentage of their income comes from “fee-based” verses “commission based” services.

6

Risk vs. Reward Beware of any advisor who downplays your concerns about risk, or encourages you to buy investment you don’t fully understand. Fancy or complicated investments are rarely good ones. Also, beware of advisors who tell you they can increase your income without increasing risk. Always ask for risk-adjusted returns when comparing investment returns.

5

What other services do they provide? The services a financial advisor offers depend on a number of factors including credentials, licenses and areas of expertise. Financial Planners cannot offer insurance or securities products such as mutual funds, ETF’s, or stocks without proper registrations, or give investment advice unless they are registered with state or federal authorities.

5030 Business Center Drive, Ste. 110, Fairfield CA, 94534 Phone: (707) 439-3483 | Fax: (707) 439-3503 www.summitwealth.net


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7

What is their methodology? Ask the potential advisor to explain their process of growing and preserving your investments. What type of investments does the advisor recommend? Does the advisor rely upon his employers investment research, or does he deploy an outside research partner to help complete due diligence on investment portfolios? What did the advisor’s portfolio look like before, during, and after the financial crisis in 2008?

8

Are they independent of financial product sponsors? Product sponsors include stock brokerage firms (discount and full-service), insurance companies, and banks. Some financial advisors are salesmen in advisors suits. Ask the advisor to provide you with a description of their conflicts of interest in writing. For example, financial advisor who are employees of banks, insurance companies or investment firms often favor their own company products, even when less competitive. Ask whether the advisor has been assigned sales, product, or cross-sell goals by their firm.

9

Is your financial advisor registered? Many financial planners offer advice in securities or insurance when they are not properly registered in these areas. Some states do not require licensing, but it is wise to only choose a financial advisor who is registered with the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) or similar licensing bodies. This could help you avert scams and give you a method of recourse in the event of unethical behavior.

10

Ask the financial advisor to explain a financial concept to you. What you are looking for here is whether or not you are able to understand the advisor’s explanation? If they speak over your head, or their answer makes no sense, just move on. You want to work with someone who can explain financial concepts to you in language you can understand. Here are 5 concept-oriented questions you might consider asking:

1. How do you determine how much of my money should be in stocks vs. bonds? 2. What is dollar-cost-averaging? 3. What do you think of annuities? 4. What is a laddered bond portfolio? 5. How do you determine how much money I can withdraw from my portfolio each year without running out?

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Think About It! At the end of this process, we will simply ask you to think about it. We are looking for long-term relationships, not a quick transaction. If you decide that we aren’t a good fit, we will happily help you find another professional with the right expertise. There is never a hard-sell or pressure to say “yes.”

If you have further questions or if we can assist you in the process of selecting a financial advisor, give us a call at (707) 439-3483. Or visit our website at summitwealth.net and request a complimentary private consultation.

5030 Business Center Drive, Ste. 110, Fairfield CA, 94534 Phone: 707.439.3483 | Fax: 707.439.3503 www.summitwealth.net


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