Questions You Should Be Asking a Financial Advisor

"What exactly is a Financial Advisor?"

It's important to understand the valuable role of a financial advisor in guiding and directing your financial decision-making. These professionals can offer guidance on managing investments, planning for taxes, and projecting retirement savings.

It's worth noting that the term "financial advisor" used to be a broad term that could refer to various positions across the financial industry. However, recent regulation from the U.S. Securities and Exchange Commission, known as Regulation Best Interest (Reg BI), has narrowed the definition of who can use this title. Typically, financial advisors are registered investment advisors (RIAs) or investment advisor representatives.

It's important to be aware that broker-dealers who use these terms in their names or titles while providing investment advice to retail customers may be violating the capacity disclosure requirement under Reg BI. This requirement obliges advisors to appropriately inform customers of the scope and terms of their relationship, as well as any material facts related to conflicts of interest when making a recommendation.

"What's your expertise?"

Financial Advisors commonly have a diverse range of investment portfolios they manage. But every advisor has their "niche." A good financial advisor will get to know you, so be comfortable getting to know them. Some of the more common areas of focus are:

Simple Portfolio Management
Transfer of Assets
Insurance (perhaps you only need an insurance agent)
Charitable Giving

Estate planning
Tax-Efficient Income Management
Higher Education Planning
Retirement Planning

No matter where you live, there's bound to be a number of financial advisors near you that specialize in whatever needs you have. Ward National always recommend working with an advisor near you, and we are more than capable of helping you find one through our Advisor Finder page, where we find the best match for you.

"Are you a fiduciary?"

It's crucial to note that any advisor registered with the SEC must comply with fiduciary duty, which is a legal obligation to prioritize the clients' interests over their own. The SEC holds fiduciaries to the highest standard of conduct, expecting them to exercise a duty of care and a duty of loyalty to their clients. This regulation ensures that your needs are put before the advisors' financial gain.

On the other hand, the Securities Exchange Act of 1934's Reg BI establishes a "best interest" standard of conduct for broker-dealers and associated persons when recommending any securities transaction or investment strategy involving securities to a retail customer, including account recommendations.

It is important to work with a fiduciary advisor to guarantee that they will prioritize your interests, even if they have conflicts of interest. When you work with a fiduciary, you can rest assured that they have a duty of trust and loyalty towards you, the consumer. Experts recommend inquiring whether the advisor abides by fiduciary duty when you first meet with them. Additionally, you can utilize services like Ward National, which connects you with fiduciary financial advisors through our matching tool here.

"Describe your fees and expenses?"

When considering different investment options that suit your needs, it's essential to understand that fees and expenses can vary. Your advisor may recommend investment accounts that charge commissions, while others may have set fees. It's crucial to know the difference between these two types of charges to make informed investment decisions.

One common way advisors are compensated for investment management is through fees based on a percentage of your assets under management (AUM). For instance, if you have $100,000 invested, and your advisor charges a 1% annual fee, you may pay $1,000 in fees, depending on your billing frequency and your account's growth throughout the year. The fee structure often includes tiers, with lower rates as your investment increases.

Some firms and individual advisors provide comprehensive wealth management services, including both asset management and ongoing financial planning. In this case, your wealth management fee may also be based on a percentage of your AUM. Therefore, it's crucial to understand the fee structure associated with your investment accounts and wealth management services to ensure that they align with your financial goals and preferences.

"Is there a minimum investment amount?"

When selecting a financial advisor, it's vital to consider any minimum investment requirements imposed by the firm. Some companies do not have a minimum investment requirement, while others have varying minimum investment requirements ranging from a few thousand dollars to tens of millions. Additionally, some companies may require clients to maintain a certain amount of assets under management to continue receiving their services.

It's important to note that numerous firms work with individual clients, whether above or below the high-net-worth threshold, without any minimum investment requirements. You can inquire about a firm's minimum initial investment or account size by asking an advisor directly or reviewing their Form ADV. It's also important to note that certain companies may waive these requirements at their sole discretion for some clients.

Be Aware of Red Flags

When considering potential firms and advisors to work with, it's extremely important to be aware of any red flags or past indiscretions that may indicate a need for caution. Several factors can cause concern and lead to hesitations about partnering with a particular advisor.

One key factor to keep in mind is disclosures. By using tools such as the SEC’s Investment Adviser Public Disclosure website and FINRA’s BrokerCheck, you can review an advisor's history and check for any legal, civil, or regulatory violations. These resources allow you to read about any alleged infractions and see how violations were resolved.

Another warning sign is pressure tactics. Advisors who utilize high-pressure tactics or offer discounts for immediately signing up as a client may not have your best interests in mind. It's wise to avoid such old-school sales techniques and work with an advisor you trust with your finances. Be comfortable knowing that Ward National only connects you to financial advisors that do NOT use these tactics.

Investment Strategies

Feeling comfortable with your investment strategy is paramount and it goes beyond simply choosing investments based on your risk tolerance. When considering an investment advisor, it's important to examine the strategies they use when managing client portfolios. Do they focus on a specific style of investing, or do they incorporate a broad range of assets? You can often find this information on the advisor's website. Additionally, reading the firm's Form ADV brochure and discussing their investment approach during an interview can provide valuable insights. While some firms are flexible in tailoring their investment strategies to their clients' needs, others have a more rigid approach.

Checklist of Questions for Your Advisor

Are you a fiduciary?
What is your fee structure?
Do you impose a minimum investment amount?
How many clients do you have?
Do you only work with particular kinds of clients?
How often will we communicate?

How often do you meet with clients?
What’s your investment philosophy?
Do you hold any financial certifications?
What costs beyond advisory fees should I be aware of?
Do you specialize in a specific area?
Why did you choose this industry?

You're All Set to Find an Advisor

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