Interview Questions for Potential Financial Advisors

Most people spend more time purchasing a mattress than they do researching an investment advisor; however, a healthy relationship with a financial advisor is – or should be – a personal one and should go much deeper than a “hot” stock tip. One of the biggest challenges with finding the right financial advisor is that it is a very personal decision, and no two people or criteria will be the same. Everyone will have their own list of needs, goals, objectives, and biases; all of which can drastically change who the right financial advisor might be.

With all of this to think about, it is extremely important to take your time, vet the options, and understand the potential conflict of interest inherent to the business. Even though criteria will vary dramatically for everyone, there are things to look for to help assist you in choosing a financial advisor that has the duty to minimize conflicts of interest, and offer solutions truly aligned with your specific financial needs and life and legacy goals.

Consider the following questions when interviewing potential financial advisors:

  1. Are your recommendations in my best interest, in other words, are you a fiduciary?

A registered investment advisor (RIA) is a “fiduciary” to his or her clients. A fiduciary has the duty to work in the best interest of his or her clients, and to put the clients’ needs foremost. The SEC explains that “included in the fiduciary standard are the duties of loyalty and care.” Broker-dealers are not bound to the same fiduciary duty standard under federal law, states the SEC, but a broker-dealer is required to make suitable recommendations, and to disclose any conflict of interests to a client. You may want to consider working with an RIA because they are held to a higher standard of care when managing your financial affairs.

  1. What credentials do you have?

Financial professionals can have a variety of designations behind their names. Depending on the types of services that you are seeking, you may want to work with professionals with the following designations: Certified Financial Planner (CFP®), Certified Public Accountant (CPA), Chartered Financial Analyst (CFA), Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Chartered Property Casualty Underwriter (CPCU), and many more. The Financial Industry Regulatory Authority outlines them in their professional designations database.1

  1. Do you earn commissions or fees on the investments that you recommend?

Understanding how the incentives work will be a very good indicator of how your financial advisor will behave with your money.  For example, a commission-based advisor has an incentive to make recommendations based on a need to create volume rather than the merits of the underlying investment.  By engaging in a fee-based arrangement, the advisor will be able to sit on the same side of the table as you because his or her paycheck only goes up when your account grows. No matter the situation, it is important to know how your advisor is compensated, and what that means for your own best interests.

  1. What is your investment philosophy?

Similar to how you would go to the doctor for your physical health or a therapist for your mental health, your financial advisor is someone that you can confide in for your financial wellness. Thus, it is crucial that you understand the approach of the person advising you about investments. A good financial advisor will take the time to understand your personal and financial circumstances to determine the investments that best suit your needs.

  1. What type of clients do you typically work with?

Generally, many advisors have clientele niches that they deem an ideal client fit. While all advisors should have a general and broad understanding of all areas of personal finance, working with clientele niches can enable advisors to specialize in unique areas of financial planning and investments to add value to the client. The prerequisites may include meeting a certain financial threshold (income, net worth, amount of liquid investable assets), having a certain occupation (physicians, business owners), or being within a certain age group (young professionals, nearing retirement individuals). It is important that the advisor you eventually decided to work with has experience in dealing with the specific situations and challenges that relate to you.

  1. What reputable third-party custodian(s) do you use for client accounts?

Make sure the investment advisor utilizes a reputable third-party custodian. Almost all investment fraud is committed by firms that not only manage their clients’ assets, but ones that custody those assets and are responsible for providing the detailed statements of those accounts.  Having a third-party validation (i.e., Fidelity, Charles Schwab, etc.) helps to provide accuracy in account report in addition to an extra layer of protection from the “Bernie Madoff” effect.

  1. Do you offer financial products such as insurance?

While most financial advisors today offer insurance, often the determining factor in the recommendations for products or carriers are made for the wrong reasons (i.e., wholesaler relationship, sales incentives and or proprietary products).  You should make sure your advisor takes an independent approach to align your needs with the appropriate and best solution. By working through your advisor with a General Agent with an open platform to choose from limitless products and insurance carriers, you are more likely to end up with an appropriate recommendation.

  1. What is your succession plan?

In an ideal world, the first advisor that you choose will stay with you throughout your entire life. However, situations can always change, and your financial advisor may not remain your financial advisor during all the pivotal periods of your financial life journey. Similar to how your financial advisor will inevitably meet many of your loved ones throughout the financial planning process, take the time to meet the other members of your advisory team. Maybe one day one of them will end up becoming your new financial advisor after succeeding your previous one.

Know Your Personal Deal Breakers

Lastly, like any business or personal relationship, know what your deal breakers are. Do you need constant communication?  Is underperformance over a full market cycle a deal breaker? Other things to consider are ongoing educational resources that are available to you and your family, a proactive vs. reactive advisor, etc.  Whatever it is that you want and expect from your advisor, make sure you articulate it, AND get it!

When it comes to your life savings or your retirement nest egg, you cannot afford to plan on promises alone.  Do your research, understand the different elements to the relationship and work with someone that you feel comfortable guiding you down your financial path. By using this initial set of questions to assist you in evaluating and selecting the best-fit investment advisor for you, you can be confident that the financial team you have assembled will be working to do what is in your best interest.


Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.

© Beacon Pointe Advisors. All Rights Reserved.


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