40 questions to ask your financial advisor before hiring them
THE STACK #9If you've been feeling overwhelmed, stressed out and confused about investing, it might be time to hire a Financial Advisor.
My goal is to ensure you have the right information and tools to help you start investing, whether through self-directed investing by enrolling in the Stack My Dime Blueprint or hiring a Financial Advisor.
But before you hire a Financial Advisor, here are a few things you will need to know 👇🏾
THE STACK
Questions to ask yourself before hiring a financial advisor
What type of help do I need?
❓ Do you need help with choosing investments?
❓ Do you need help with purchasing and managing your investments?
❓ Do you need retirement planning?
❓ Do you need tax advice?
❓ Do you need estate planning?
Knowing what you need help with will determine the type of Financial Advisor you will hire.
What type of Financial Advisor will I need?
Different types of Financial Advisors (FA) exist in the industry.
You will need to hire an FA based on the types of services they offer.
The FA you typically get at the bank is a Mutual Fund Broker whose job is to sell you mutual funds.
This is why most people who have their Mutual Funds with banks have no proper understanding of what they're invested in because the Mutual Fund Broker's job is to carry out transactions, NOT educate you.
If you need investment advice, you will need to hire a Registered Investment Advisor.
If you need a more holistic financial planning that involves getting your finances under control, retirement planning, asset allocation, debt management, estate planning etc... you will need to hire a Certified Financial Planner or Financial Coach.
How long will I need this help?
❓Do you need one-time advice?
❓ Do you need someone to get you set up, and you can do the rest yourself?
❓ Do you need ongoing portfolio management?
Knowing how long you need help will determine the costs of hiring an FA.
Can I learn this on my own?
Most people can become self-directed investors but fear and overwhelm leads them to believe they need to hire an expert.
Commit to learning the basics of investing, and if it all still feels intimidating to you, you can decide to hire an FA.
Can I afford the costs of a Financial Advisor?
Hiring an FA is expensive.
The costs of an FA eat into your investment gains. Over time, that could seriously erode your wealth.
Take a look at this chart, for example:
If you invest $100,000 with an FA and your total fees (including the expense ratio of your mutual funds), come out to 2%.
Over the course of 25 yrs and at an 8% expected rate of return:
😢 You would only get to keep 56% of your total gains
😎 Which is about $329,187
😱 You would have also lost $255,660 in fees!!!!!!
So basically, you spent the last 25 yrs making your FA rich, yikes! 🥴
QUESTIONS TO ASK YOUR FINANCIAL ADVISOR BEFORE HIRING THEM
What types of services do you offer?
Get clarity on the types of services your FA offers.
Some FAs hold multiple designations and can offer multiple services.
Ensure the services they offer matches the help you need.
What types of products do you offer?
Ask them about the types of products they are licensed to sell.
Do they offer index funds and ETFs or just mutual funds?
Ensure they offer or can get you into the type of investments YOU WANT, not just the one they try to push on you.
How will you help me achieve my goals?
The first thing a Financial Advisor needs to do is to create a plan based on your goals.
The FA should also explain WHY they have chosen this specific plan for you and how that plan will help you achieve your goals.
The plan has to make sense to you and your goals.
Be prepared to walk away if you're not satisfied with the plan.
How do you get paid?
Are they paid a salary, fee or commission?
What types of commission do they get paid?
Do they get paid a commission for the products they recommend?
Are they a fiduciary?
What are my total costs?
Aside from the fees you're paying your FA, there might also be other costs like trading fees to purchase and sell your investments.
Find out what all these costs will come up to.
Your FA should provide a breakdown of your total costs for the year.
What are your qualifications?
Find out the qualifications and designations your FA has and if they have a registered license.
Are they registered by a securities regulator?
Do they have any disciplinary action against them, or have they ever been investigated by a securities regulator?
FAs that are licensed are easier to vet as they will be held accountable by the regulatory body.
I have included a link to some of the directories you can use to find and vet your FA in the "TOOLS" section below.
There is an extensive list of questions you will need to ask your FA.
I have summarized it all into this questionnaire with 40 questions to ask your Financial Advisor, which you can download and take with you during your first consultation.
Ensure your FA is able to answer all your questions satisfactorily WITHOUT making you look stupid.
If at any time you don't feel comfortable working with them, WALK AWAY!!!
THE TOOL
Looking for a Financial Advisor in your area? Here are some links you can use.
Please note that none of these FAs have been vetted by me. I am in no way affiliated with any of these FAs or firms.
Do your due diligence by ensuring the FA you choose is a right fit
Ensure that they don't have any disciplinary actions against them and
Their license is still active.
Find a Financial Advisor - Canada
Find a Registered Financial Planner - Canada
Fee for service Financial advisors in Canada
Fee only / Fiduciary Financial Advisor - USA
THE ACCOUNTABILITY
Haven't filed your taxes yet? There's still time!
Here are the deadlines:
🗓 File 2021 income tax for individuals - May 2nd, 2022
🗓 File 2021 income tax for self-employed - June 15, 2022
THE COURAGE
THE KNOWLEDGE
Who is a Financial Advisor?
A Financial Advisor is a finance professional who helps their clients reach their financial goals by providing strategies to create wealth, eliminate debt and save more, amongst other things.
Financial advisor is a catch-all term for different types of advisors that provide various services, including investment managers, financial planners, financial consultants, brokers or robo-advisors.
Hiring a Financial Advisor who offers services that suit your needs is vital.
Types of advisors
☞Certified Financial Planner
☞Personal Financial Planner
☞Registered Financial Planner
☞Registered Investment advisor
☞Wealth Manager
☞Mutual Fund Broker
☞Stock Broker
☞Robo-advisor
☞Insurance advisor
Who is a fiduciary?
A fiduciary is someone who puts the client's interest first. They are not paid a commission for the products they recommend.
Most non-fiduciary FAs will only recommend products to you that they get paid a commission. Therefore, these products might not be the best for your goals.
Hiring a Financial Advisor that is a fiduciary will help reduce your fees and also assure you that the products they recommend to you are in your best interest.
Hiring a Financial advisor can be a lengthy process, here's hoping you find the right fit.
That's it for this week's STACK!
Talk to you next week,
But until then...Keep Stacking!
about the newsletterEvery Saturday, subscribers will receive one money tip, one tool, one actionable step, one word of courage and learn a new finance term to help you gain control of your finances in less than five minutes.
Free resources
Keep reading the latest NEWSLETTERS
How to cycle sync your finances