If you think about your family as a business, your financial planner essentially takes on the role of a financial coach. This isn’t a role you should fill with just anyone. You must get to know several candidates so you can be sure you pick the right person for the job, one that is knowledgeable and that you can communicate with.
There are some qualities you should want your financial planner to have, though. Communication and integrity are high on the list. So, here are five questions you should ask to figure out whether you’ve found someone worth working with.
1. How long have you been a financial planner?
As mentioned, experience and knowledge are important. One of the best ways to determine how much of these a financial planner has is to ask how long they’ve been practicing. A good rule of thumb is not to hire a financial planner who has been practicing for fewer than five years. While they may have a lot of experience as an accountant or as a banker, this doesn’t necessarily translate to financial planning. You’re talking about your retirement, your life savings, and you need to leave it in the hands of someone who knows what they’re doing.
Another thing to think about is whether you consider internships to be work experience. Some programs and certifications require this before the person is allowed to practice and the argument can be made they have more experience than the years they’ve been working.
You should also question what areas they are most interested in pursuing and make sure it lines up with what you hope to gain from them.
2. Can you describe your ideal client?
Financial planners have areas of specialization, just like almost any career. You want to find someone who knows how to work with people like you. So, if you’re just starting your family and worrying about saving for college, a financial planner who prefers working with people close to retirement may not be a good match.
3. What can I expect in retirement?
Specifically, ask about your retirement planning projection. This is the amount of money you have available to you every year and is based on estimates about asset growth, inflation, and spending.
Choose to work with someone a little more on the conservative side. This would be growing assets at 6% a year with an inflation rate of 3%. Annual growth for real estate should be at about 2%, according to David Weliver from Monday Under 30.
Why is it important to go with someone more conservative? Conservative estimates are more realistic and, in a way, more honest. Someone who puts forth a 12% return with low inflation may sound promising but they’re likely making promises they can’t keep.
4. Can you explain this to me?
The point of this question is not necessary to find out the answer. In fact, you should choose a question that you already know the answer to so you can make sure they’re being upfront with you.
What’s important is not the knowledge, necessarily, but that they can clearly communicate with you. Of course, they should know what they’re talking about but you don’t want someone who is going to talk over your head or make you feel like they’re talking down to you. The right financial planner takes the time to explain these concepts in a way that you can understand and should be willing to answer questions until you do.
Need help coming up with questions to ask? Try:
● Can you explain annuities?
● Can you tell me what a laddered bond portfolio is?
● How do you decide how to split my money between stocks and bonds?
● What is the difference between active and passive investing?
5. How do you get paid?
Again, what you’re looking for is honesty. The right financial advisor will be honest with you about fees, expenses, and where their compensation is coming from. If they dance around the question by insisting that you won’t pay out of pocket or tell you that they’re paid only by their employer, push for a better answer.
People are generally loyal to the person who’s signing their paycheck. If your advisor is paid directly from fees from you, they have extra incentive to do right by you. If they’re paid commissions or by fees that come through their broker, they’re more likely to push what the broker wants them to.
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