3 Questions When Hiring A Financial Advisor

Hiring a financial advisor is tricky. It’s not like selecting a carpet cleaner or a pet-sitter. You can easily hire a different company next time you need your carpets scrubbed, while a financial advisor is likely to be handling your money for years.

That’s a good thing, in general. Continuity and discipline keep a retirement plan on track. But it means that the level of homework you have to do before hiring investment help is that much higher.

Here are three key questions to ask before hiring a financial advisor:

1. How are you paid?

This is huge. Some financial advisors are truly planners. They might charge you a flat hourly fee and be available as you need them throughout the year. Others will expect to earn a fee based on the assets you have.

Still others will charge you a fee and, separately, accept payments from mutual funds and insurance companies for selling you specific products. Under current law, such financial products need only be “suitable” for you, although not necessarily in your best interest.

Ideally, you pay as little as possible for investment advice that you can trust and follow without confusion. There should be no conflicts of interest. If the advisor does accept outside money such as commissions, these should be clearly disclosed upfront.

2. What will you do for me?

Do you need someone to help you by and sell stocks? That’s a broker. Do you need help setting up an IRA? A financial planner is best. Do you need insurance or estate planning help? Then an insurance agent or lawyer is the call.

A good all-around financial advisor knows what he or she can reasonably do for a client and when to suggest a colleague in another area with more expertise. Understand your advisor’s strengths — and weaknesses — before you hire.

3. What returns should I expect?

Stocks, bonds and other investment classes have easily understandable long-term return averages. Held in a portfolio and rebalanced, you can predict the performance of your savings with reasonable accuracy.

Any advisor who promises you double-digit, market-beating returns might be able to do that. Just as likely, they could lose your money, too. Make sure the numbers you are shown, if any, jibe with returns that make logical sense.

Finally, like with a doctor, it’s really a matter of a good fit and trust. If you start off with a financial advisor and then find after six months it’s not a match — move on. You can’t afford to wait 10 years to make a decision if the advisor you initially choose isn’t the right advisor for you.