It's a relationship you hope will go the distance, one in which you'll share confidential information and talk of dreams and goals. But entering into it lightly, even naively, can turn regrettable as the quarters
pass and you realize the partnership
is not producing the kinds of returns you expected.
Indeed, finding an ideal match with a financial planner
requires work. There are credentials to check, professional backgrounds to research and clients to interview. But you can't stop there: You'll also need to ask hard questions that can help you evaluate whether working together has promise or is destined for a messy ending.
Many people don't question potential advisers very much. Of the more than 200 clients Philip Board
advises at his firm, 1 On 1 Financial in Upland, Calif., fewer than 10% put him through an interview of sorts. Many were referred from someone, and in that scenario, he said, "There's a certain level of trust already implied."
Trust does go a long way, but many other elements are worth considering. So how do you avert disaster and pick the right adviser the first time? With these four simple questions:
1. Can you tell me about a client who was a bad fit?
Drumming up the negative can bring positive results -- it's a way of asking if you'll be a mismatch, too. Perhaps the planner will offer
anecdotes about former clients who wanted too much hand-holding -- the kind you might be envisioning. Or maybe some clients had diverging expectations about financial returns, and in fact, you have those same expectations. It could even come down to investing
"I've had clients who strongly believe that a long-term buy and hold
(strategy) is the only way to go," Board said. "That's OK if they feel that way, but I don't."
2. What is an ETF?
Don't worry about sounding ill-informed about exchange-traded funds
, which can be bought and sold daily like stocks
of mutual funds
. These securities are complex, and that makes them great tools for testing an adviser's patience and ability to explain difficult concepts.
"If an adviser is willing to take the time to explain everything to you and makes sure you understand what they're talking about, I think that's really key," said Roger Wohlner
, a financial adviser
in Arlington Heights, Ill. "I firmly believe that no client should be in something that can't easily be explained to them."
3. What is the demographic of your client base? You want someone who works with others in your age range and stage of life and who have similar assets to invest.
"If they say they work with people who have been retired for more than 10 years and here you are not even retired yet, there's a big disparity in the type of clients they're used to working with," Board said.
4. What are some of your outside interests? Remember, this relationship is not all about the dollars and cents.
"If you're being advised, you want to know them, like them and appreciate their advice," Board said.
Asking about interests is a way to learn about someone without getting too personal. This is a person, after all, who might one day calm you down during a market free fall or after a job loss. You're going to want to hear those reassuring words from someone you trust and with whom you click.
"I've had clients from time to time who don't have very good senses of humor," Board said. "Those clients don't last with me long -- their decision, not mine -- but usually they don't stay as long because there isn't that connection."
Financial advisers probably will be vetting you to see if you're a good fit for them, too. Board, for instance, has met potential clients who wanted him to trade stocks for them all day, but he doesn't do that. He tells them that's a full-time job in itself and that he prefers to work with long-term money. Uncovering that kind of conflict early on can head off potential disasters.
The Investing Answer:
The answers to your questions should go beyond the planner's resume. You're searching for a person whose advice affects your livelihood. Through the years you'll need to feel comfortable not only with the planner's expertise, but also with his or her demeanor and investment