Picture this scenario: You have a meeting tomorrow that you’ve scheduled with a financial advisor because you know that proper planning is important. You’re proud of yourself for taking action and scheduling this meeting and you feel a sense of accomplishment for doing so. You know that this is a huge step to take. However, you can’t shake this nagging feeling inside that says, “I have NO idea what I’m doing when it comes to this stuff, and besides, how do I even know that the person I’m meeting with has my best interests at heart?!”
You’re not alone on this one. It may be safe to say that most people feel this way and, if they’re not saying it, they’re thinking it. I mean, who wouldn’t? From the meltdown in the mortgage industry to the Bernie Madoff’s of the world, the financial services industry hasn’t exactly been portrayed as a bastion of virtue. Granted, that may sound unfair since the number of financial professionals that truly do have a heart to put the clients best interests first far outweigh the number of those who are blinded by greed and seek their own gain. Yet, because of the latter, millions of Americans every year are hesitant to meet with a financial expert. Some even putting off planning altogether, due to a lack of knowledge, expertise, and, ultimately, trust in the industry itself.
So, the question that haunts the minds of every well-intentioned person who simply wants to properly protect what they have and leave a financial legacy to those they leave behind is this: “Is there really any way to equip myself to be able to discern if the financial advisor that I’m meeting with is looking out for my best interests?”
Of course there is. And to be perfectly honest, this stuff really isn’t that complicated. Here it is in a nutshell: Proper financial planning really addresses two major issues…dying too soon and living too long. It simply matches assets to liabilities. That’s it! Think about it. It all boils down to life insurance and retirement planning. Utilizing a suitable life insurance policy protects your family against you dying too soon. Having a review done by the right person makes absolutely certain your life insurance policy is the correct type, correct amount, & best value. On the other side of the equation, a suitable investment strategy protects your family from living too long. Having an objective review done in this area makes absolutely certain your investments match your liabilities considering risk, growth, & value. Both of these strategies assure sufficient money to fully fund a lifetime of financial needs and, at the end of the day, the average person would sleep much better at night knowing that these two issues were off of their “to-do” list. Wouldn’t you? It’s a pretty powerful thing to know that your family is set financially and won’t have to struggle if something were to suddenly happen to you (i.e. Death) that cuts off your family’s income stream. The majority of people have others that are dependent on their income and this can be a major cause of stress if not properly handled. Likewise, in the wake of one of the worst market crashes in history (2008), millions of Americans saw their retirement accounts dwindle anywhere between 37% and 50% seemingly overnight. The subject of outliving their retirement (i.e. running out of money before you die) is a very new reality that many people simply weren’t prepared for. Fortunately, there are incredibly practical solutions to both of these problems, and having a fiduciary (person of trust who acts solely in your best interest) in your court literally can make all the difference in the world. To know whether or not your advisor is really on the same side of the table as you, here are two very easy questions that you can ask in order to see who’s best interest they have in mind.
2 Questions You Need to Ask Your Financial Planner
1. Do You Offer More Than One Company’s Products?
In my opinion, this is one of the most important questions that you can ask any financial professional. Why? Because the answer to this question reveals to you whether or not the person sitting across the table from you can offer you multiple solutions from multiple companies. Remember, the end-user here is YOU. Wouldn’t you prefer to have someone that can choose from a variety of different companies, products, and services in order to best serve your needs over someone who has to “fit” your situation into their limited arsenal of proprietary products and services? A red flag should go up if you have someone telling you why “their” product or service is better than everyone else’s when it comes to financial planning. Each individual situation is unique. There is no “one-size-fits-all” product to meet everyone’s needs. The bottom line is this: the person who can offer multiple products from multiple companies may have more independence, freedom, and objectivity when it comes to providing the right solution to fit your individual situation.
2. Do You Have Sales Quotas?
Let’s be clear…sales quotas are different from sales goals. It is safe and healthy for a financial advisor (or anyone for that matter) to set goals for themselves and to have a plan to achieve them. That’s a fact that most people wouldn’t argue with. A quota, on the other hand, is much different and has the propensity to cause many good people to do not so good things. Is it fair to say that anyone who is working under a quota system is going to do something unethical? Of course not and I would be grossly ignorant to suggest such a thing. Having a sales quota means that someone working in that environment is bound and obligated to meet certain performance standards (i.e. sales transactions) in order to maintain their position. Typically, failing to meet a quota can result in demotion, replacement, or even termination. This is exactly the type of high-stress environment that I would NOT want my financial advisor to be working under! Imagine if it were the end of the month and he or she had to either make one more sale or risk being fired, only to have to go home and tell their spouse and children that they may lose the house because of it. That scenario is not as far from reality as we may choose to believe! The point is that someone in that position may be under extreme temptation to offer a certain product or service that pays them more than an alternative solution that may be better for their client. Conversely, if the professional that’s helping you is under no pressure or fear of losing their job under a quota system, everyone involved in the relationship will be able to relax, breath a little easier, and take the time to figure out which solution makes the most sense for YOU.
Obviously, there are many more questions that can, and should be, asked of your financial advisor before moving forward. However, starting off your relationship with these two practical (and revealing) questions can very quickly and easily help uncover who you are working with and can help you to avoid wasting time, energy and possibly thousands of dollars in the process!
Which question do you think is most important to ask your financial advisor? Leave a comment and help empower someone else!
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{ 10 comments… read them below or add one }
Good article. As a fee-only financial advisor I would suggest that anyone looking for a financial advisor check out NAPFA’s Find an Advisor Link http://findanadvisor.napfa.org/Home.aspx as well as NAPFA’s guide to finding an advisor. http://napfa.org/UserFiles/File/FinancialAdvisorFieldGuidev13.pdf Full disclosure I am a NAPFA registered advisor and have been since 2003.
A further comment, anyone with a sales quota is a sales person, not a financial advisor in my opinion. It is a myth (created by financial services firms) that smaller investors cannot get quality financial advice and help without paying sales commissions. Many NAPFA advisors work on an hourly or as needed basis.
Great start, but a financial professional can easily still be meeting to serve their own interest rather than their client’s while offering multiple company products and having no sales quotas. I would add the questions – Are you held to a fiduciary standard? What does that mean in how you make recommendations?
Angela,
I agree completely and actually had that in my original draft! However, I felt that my answer would have been way too long on that subject for an article post! At the end of the day, my hope is to help get someone who has limited knowledge of this stuff thinking about these types of questions so that they can be better prepared. There are lots more questions that could be asked by the client and, ultimately, even more great values-based questions should be asked by the planner toward the client! Thanks for the thought!
Angela, couldn’t agree more with your comment about whether the advisor is held to a fiduciary standard. As a NAPFA member, we all sign/affirm our oath to act in a Fiduciary capacity towards our clients. If one were to ask this question of a typical commissioned or fee-based registered rep I’d be very interested in the answer.
very well stated, nice work!
all the best to you and the fam!
It’s always important to make sure that your financial adviser is customizing your plan to fit your needs/wants. Great post.
Hi Adam, Thank you for your article, I agree that these are two critical questions, and Angela’s additional questions on fiduciary standards are equally important. I am a Christian Financial Planner in Australia, and would love to have every new client asking these questions, and more – perhaps if people were a little more questioning, we wouldn’t see as many people getting ripped off by the scoundrels out there?
Perhaps a pertinent question would be: “Do you benefit from me reaching my goals, and keeping me on track over many years, or just for placing some product?” I prefer to work towards a “relationship” solution rather than “here is a product that suits you now”. Long term planning deserves a long term, trusting relationship.
Adam,this is a great article. Thanks for opening my eyes to these tips, though when it comes to the issue of effectiveness, so many factors come to play.
Another essential question is: “How do you get paid?”
Are you actually writing them a check for their advice? Or do they get paid by a company when they sell that company’s product to you? This doesn’t necessarily mean they are ripping you off, or even failing to ‘advise’ you in your best interest, but you should know how they get paid so you can see the potential conflicts of interest.
I agree that financial planning is something that should be addressed right at the beginning of the life and this blog is really helping people a lot addressing their money and finance related issues.
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