10 Questions to Ask a Financial Professional

The Department of Labor’s fiduciary rule, which would have forced financial professionals and their firms’ overseeing the nearly $3 trillion in retirement savings, to work in their clients’ best interest, is in limbo land. That’s because the Trump Administration seems likely to bow to the interests of some large financial and insurance companies and water down the horrifying idea that financial professionals should act in the best interest of consumers. Meanwhile, the SEC is planning to propose its own fiduciary rule this year, which would be a watered down version of the original idea.

The Certified Financial Planner Board of Standards (“CFP Board”) is going in the opposite direction, as it contemplates a proposed change to the standards of conduct attached to the mark. The new standard would require all CFPs to act in the best interests of their clients at all times, not just when they are providing financial advice. As CFP Board chief executive Kevin Keller said, “As longtime advocates for a fiduciary standard for all investment advice, we believe that there is never a wrong time to do the right thing."

As the f-word enters another phase, here again is my list of Ten Questions to Ask a Financial Pro:

1) Are you held to the fiduciary standard?  Investment professionals who aren’t fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.

2) How will I pay for your services? The advisor should clearly state in writing how she will be paid for the services provided. The three basic methods are: fees based on an hourly or flat rate; fees based on a percentage of your portfolio value, often called “Assets Under Management” (“AUM”); and commissions paid per transaction. How often you expect to trade, and whether you want your money pro-actively managed, will help determine which model works best for you.

3) What experience do you have? Find out how long the advisor has been in practice and where. Also ask if she has any professional certifications, licenses or designations. Some certifications/memberships include: CFP® certification from the Certified Financial Planner Board of Standards, CPA Personal Financial Specialists, members of the National Association of Personal Financial Advisors, Chartered Financial Analyst.

4) What services do you offer? Services offered can depend on a number of factors including credentials, licenses and areas of expertise. Some conduct financial planning alone and do not sell financial products. Others may only manage assets.

5) What is your approach to financial planning and investing? Some advisors prefer to develop a holistic plan that brings together all of your financial goals. Others provide advice on specific areas, as needed. Make sure the advisor’s viewpoint on investing is neither too cautious nor overly aggressive for your risk tolerance. A great follow up: what were the three worst investment decisions you made over the past five years, and how did you correct them?

6) Can you provide three references? Ask for two current clients whose goals and finances match your own, as well as a professional reference, like an accountant or estate attorney.

7) Do you have a financial interest in the entity that houses my account? When interviewing advisors not associated with large brokerage or insurance companies, ask if they use an independent, third party custodian or clearing firm (this is the entity that produces your statements), which prevents the advisor from having direct custody of your assets and adds another level of security for your account.

8) Is there anything in your regulatory record that I should know about? Conduct background checks on the professional you may hire by visiting the Securities & Exchange Commission and FINRA websites or the State Securities website NASAA as well as the CFP Board. While some violations are non-starters (settlement of multiple customer complaints) others may be acceptable to you.

9) How often will we interact? What should you expect in terms of frequency of verbal, written and in-person communication? Also ask whether the advisor will remain your primary contact.

10) ASK YOURSELF: Do I like this person? You are about to enter into an intimate relationship that will hopefully last a long time. If you have any reservations, move on. There are plenty of qualified advisors out there who would like to help you out.