You need to be able to trust your financial advisor to manage the money that will allow you to retire and your family to live comfortably. This makes selecting the correct advisor critical. Choosing the wrong person for the job could have significant consequences.
Nassau County officials arrested a financial advisor in June 2018 for scamming elderly clients out of millions of dollars. Sadly, it’s horror stories like this that make life more difficult for advisors who conduct business ethically with their clients’ best interest in mind.
Someone doesn’t even have to have malicious intent to interfere with your financial future.
Ask what returns their clients see
Don’t feel as if you’re sticking your nose in someone else’s business. You are considering giving this person your business and placing your finances in their hands. It’s okay to get a little uncomfortable. Asking questions is important. Among the most important answers you should seek is what returns their clients see on similar portfolios to yours. Additionally, the advisor should be able to tell you how they got their clients those returns.
Make sure they ask you enough questions
You shouldn’t be the only one asking questions. A good advisor will ask their share of questions to help them determine if you’re the right client for them. This is a great way to learn about each other. When the advisor asks questions, you may recognize areas of weakness that show you where they can help. After all, recognizing the value of your prospective financial advisor is the purposes, isn’t it?
Understand how they get paid
Knowing how your advisor gets paid is important. For instance, some firms pay advisors on a fee-only basis, meaning they’re paid off the returns on your investments. Some feel this incentivizes advisors to earn you better returns and act in your best interest with fewer conflicts of interests. Others are more skeptical, saying that this pay model encourages advisors to act in their best interest and take unnecessary risks to earn you more money faster.
Asking an advisor how they’re paid is different than asking how much they make. Don’t let this line of questioning bother you. How firm pays their advisors could determine how comfortable you are working with them.
Don’t settle for just any advisor
How do you know if you can trust your advisor? Asking questions is a great way to learn more about what they do and how they do business. Getting a second opinion from reviews or asking friends for a referral are other ways to find trustworthy advisors.