It can feel like a big step to put your investment strategy and financial future in the hands of an advisor. Whether you’re new to working with an advisor entirely or making a switch from an existing advisor – it can be challenging to wade through sales pitches to really understand what you’re getting.
Consider asking these key questions when you’re interviewing financial advisors to make sure you’re selecting someone who can best help you achieve your goals.
4 Key Questions to Consider When Selecting A Financial Advisor:
"Are you a fiduciary?" - Registered Investment Advisor (RIA) firms are required to act in the best interest of clients at all times (i.e. fiduciary duty), and do not accept sales commissions. This means that there is no incentive for you to be steered towards a subpar investment simply because the advisor makes a commission on it. Someone who works for an RIA firm is called an Investment Advisor Representative (IAR).
"Are you fee-only?" - In addition to providing financial advice through an RIA firm, some advisors are dual-registered as a Registered Representative employed by a Broker-Dealer (aka “stock broker”), or licensed as an insurance agent. Dual-registered advisors face the competing interests of third-parties that compensate them for the sale of financial products and advisory clients (i.e. you) who compensate them for unbiased financial advice.
"Do you have experience as a professional investor?" - Many advisors don’t actually come from an investment or finance background. Often, their relevant experience is in sales (either with financial products, or unrelated altogether). Advisors not only work to win your business, but as the person who manages your portfolio THEY are also the product. You wouldn’t go to a doctor who doesn’t have proper medical training, so why put your money in the hands of someone who isn’t a seasoned investor?
"Do you use in-house investment products?" - You want an advisor who can construct a diversified portfolio built to achieve your goals, not someone else’s. Make sure your advisor’s platform offers a broad roster of investments, without an emphasis on investment products sold by the company they work for.
Pulling It All Together
How do advisors function in multiple capacities at the same time? Large financial firms typically have several subsidiaries offering different services, and client-facing employees may participate in one (or all) of them. If you want to confirm the role of who you are working with, you can search this regulatory database.
It’s always important to understand how the person you’re working with is compensated. At Paceline, we believe that if you are seeking unbiased financial advice, it makes sense to work with someone who isn’t paid to do anything else.
To learn more, or for a free, no-obligation Portfolio Second Opinion please contact Paceline.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.