4 Questions to Know Your Financial Advisor

Anybody who has experienced significant medical concerns for themselves or a loved one knows the value of a good Doctor. We recognize good bedside manner, specialized expertise, and knowledge of unique treatments that can best help us or our loved ones through their unique challenges. Oftentimes, the more complicated the issue, the more specialized of a doctor we seek out. One thing we don’t think to seek out, however, is whether or not the doctor went to medical school. All doctors, no matter the specialty, had to complete a certain number of years of schooling, rotations, and residency. And it is that level of training that allows the patient to trust that doctors are trained to know what is needed.

We recognize this phenomenon in most career paths. We know a lawyer cannot practice without having attended law school and passing the bar exam. Doctors complete their schooling and pass their boards. To call yourself a teacher you need to have an up-to-date teaching license. There are standards in professions that are required before you are given the title. What may surprise you is that that is not the case for the title of “financial advisor”. There is not a single streamlined designation or schooling requirement (?) to use that term. (**) One can have a comprehensive licensure and certifications that allows them to sell you and advise you on anything and everything, or they can have a single license that limits their advice and sales to purely one product. Both of these options are considered “financial advisors”. The general public needs to know whom they are working with, so they can choose the professional that is right for them. Below are 4 questions to ask your “financial advisor.”

What services do you provide?

All surgeons are doctors but not all doctors are surgeons, right? Similarly, all comprehensive financial planners are financial advisors but not all financial advisors are comprehensive planners. Does your professional have a niche or specialty? Do they primarily focus on one area of finance (investments, insurance, taxes, etc) or do they work with all types of needs? This will allow you to discern whether their services are the right fit for your questions or needs.

What Licenses and Certifications do you hold and what do those allow you to do?

There are a plethora of different licenses and certifications out there that mean a lot inside the financial industry but are not well known to the general consumer. These designations directly impact what your financial professional can do for you.

Licenses: A license allows the designated holder the right to legally sell products specific to that license. It is not allowed to be used as a designation or title held behind one’s name. According to Finra and state regulators, it is to show that the holder of the license has proven the minimum standards required to sell the financial products held within the license.

Certifications: Certifications do not allow the certificant to sell anything, but rather shows the additional expertise of the financial professional. It designates specialties in the advice and counsel the professional can provide due to additional rigorous trainings by the certifying entities. Certifications can be used to provide titles and designations behind one’s name.

Many “financial advisors” hold multiple licenses and certifications. Each one creates more or less expertise in wider or more focused financial areas. It is important to ask your financial professional what licenses and designations they hold to assess if their training meets your needs. You can access a list of different licenses and certifications here.

Are you a fiduciary?

This is the most important question you will ever ask your financial professional and it is important to know their answer. What is a fiduciary? Well, it is a complicated legal term that means they have to work for your best interest. Where do their loyalties lie? Not all professionals have to be loyal to their clients first. Many just have to do right by their clients but are loyal to their companies or institutions. Think about a doctor again. Let’s say you have lower back pain. Let’s also say two medications are prescribed for lower back pain: One that will work better for your unique type of pain, or one that pays your doctor more to prescribe. You would hope your doctor would give you the medication that is best for you, not the one that pays him or her more. It is the same for financial advice and products. A fiduciary is legally required to put your needs before theirs. Therefore, they have to provide you with the investment products and advice that is best for you, not that pays him or her more.

How are you compensated?

This is a question of motive. We all work to get paid. It is a rule of life. And the way we get paid motivates our production at work. Financial advisors get paid a plethora of different ways and it is important to know how and what you are paying for to understand their motives. Do they get paid a one-time bonus by their company to sign clients up with new accounts? Do they get paid commissions on product sales like insurance sales? Do they get paid a percentage of your account balance and, if so, what percentage is it? Do they get paid hourly and what is their rate? Do they get paid for the advice they give or the products they sell?

Much like our physical health, our financial health is big and complicated and filled with different areas. And just like with doctors, there is a world of difference between different financial advisors. It is not always obvious the differences between them. No matter what your financial needs are, there is a professional to fit your unique situation. Whether it is an initial meeting with an advisor or an advisor you have worked with for years, it is worth asking these questions.