I’ve been a financial adviser since 2012. Over the years, I’ve been asked questions ranging from predictable to surprising.
But one of the most surprising aspects of the job is when clients fail to ask major questions.
Investors might choose to work with financial advisers that they know, like and trust. Yet, people often don’t actually know their financial adviser that well or the relationship the adviser has to the company they work for.
Here are three questions that aren’t asked nearly enough — and why they should be.
1. Are you a fiduciary? Sometimes? All the time?
The fiduciary standard “requires an advisor to act solely in the client’s best interest when offering personalized financial advice,” according to the Certified Financial Planning Board.
The majority of people assume the financial professional they are looking to hire or have hired is a fiduciary.
You may not know that the majority of financial advisers are not held to a fiduciary standard, but instead a lower “suitability standard.” The suitability standard requires a financial adviser to make sure the investment is “suitable” but not necessarily the best for you.
Imagine a scenario where your recommended investments aren’t the best but are “suitable” for your goals, and the financial adviser or company can make more revenue by offering them. This is an example of conflicts of interest dictating what investments you may be recommended.
Currently, a wide range of people can say they are financial advisers, but most are not a fiduciary all of the time. Many are legally product salespeople that represent financial products and whose job is to make their financial firm money. Some advisers are a fiduciary part of the time and a salesperson other times.
Unfortunately, in our current system, it’s not easy to figure out when they are a fiduciary or a salesperson. If you are using an adviser now, ask them and see what they say. If you’re looking for a financial adviser that is required to do what’s best for you at all times, you can find one that works for a registered investment advisor (RIA).
2. What happens if you change companies?
When you enter into a relationship with a financial adviser, you likely are seeking something for the long haul. While that adviser may have every intention of staying with their current firm for decades, things change and people sometimes join other companies.
If your financial adviser changes firms, it may not be as simple as you’d think for you to transfer your accounts to follow them.
Many financial advisers have an agreement with their employer that they won’t solicit clients if they change companies. Imagine you’ve been working with an adviser for 10 years and you’re very happy with them. You receive a letter or phone call telling you the adviser is no longer with the company. Your adviser can’t call you and tell you they are now at XYZ company and you can move your investments. Now you’d be reassigned to a new financial adviser and your 10-year relationship with the previous adviser would end.
At some companies, the financial adviser can take some basic information with them when they change companies. The “Broker Protocol” was established to allow advisers to take the name, address, phone number, email address and account title of the clients they personally serviced. Not all companies are part of the protocol. Your adviser may not be able to contact you if he or she changes companies.
3. How does your firm measure your performance as a financial adviser?
In general, success can be measured in a variety of ways for both personal goals and employment performance.
You may think that financial advisers are measured by their ability to give advice to their clients and have positive outcomes. You would expect performance measures to be centered on acquiring professional designations, education or client investment performance. Because the financial adviser is supposed to be in the business of giving financial advice, their performance measures should reflect that.
At most of the top financial firms across the country, performance is measured by the financial adviser’s ability to generate revenue for the firm as well as getting assets to transfer in.
Ask your financial adviser how their employment performance is measured by their firm. Are they measured on their ability to give client advice and help people or their ability to generate revenue for their company?
Putting it all together
These three questions are important questions to ask a prospective financial adviser or your current one. You should understand if your adviser is acting in your best interests, sometimes or all the time.
When you receive these answers, you should have a good understanding of the employment relationship the adviser has and what that means for you. Knowing if your financial adviser is measured by their ability to help their clients or by their ability to generate revenue is key to understanding if they are going to be the right financial adviser for you.
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