What Do You Need to Know Before Working with a Financial Planner?

Podcast Details:

Podcast Title:  What Do You Need to Know Before Working with  a Financial Planner?
Podcast Series: Financial Literacy Boot Camp
(Video and illustrations available on our YouTube channel here.)

I really wanted to use this show as a way to update my article:  “Five Tips to Consider Before Choosing an Advisor”.  As an industry insider and one that has a concern for those that consume financial services, there are things you should know before working with a financial planner/advisor/professional.

Some of this has been covered previously through the above-referenced article and Episode 10-“Putting the Serve Back into Financial Services”, however, after recently giving a talk at a conference about this subject I felt I should update “the list”.

Questions/Issues We’ll Address on this Episode:

The 5 Areas of Greatest Concern:

Experience (Qualfications, Education, Specialty, Etc.) – (7:47)

Let’s talk experience.  Now I covered in a previous episode (“The Low Down on Financial Advisor Credentials”) some of the more popular professional designations.  I’m going to stick with what I’ve said before that you want someone that has been working with clients for at least 5 years especially if they have their own firm.  If it is a larger firm obviously the collective experience will probably exceed that.  But you may also want to look for a specific expertise.  What is your particular pain point?  Why do you want their help?  Ask them specifically how they have helped people in your shoes.  This will get them talking about their experience and their service offering which should give you some answers

Fiduciary Role (Ethics, Conflicts of Interest, Etc.) -(12:55)

I think the first and foremost is making sure your advisor is a fiduciary.  I actually spoke with a prospective client the other day and he actually referenced this term.  He asked about my pay structure and how I’m compensated.  I applauded his level of knowledge because most individuals working with an advisor don’t even know how their advisor is paid.  And if you don’t know how they’re paid you don’t know if his or hers interest are aligned with yours.  So make sure they adhere to a fiduciary standard and are looking to serve client interests before their own.

Method of Compensation (commission-based  vs fee-based) -(15:00)

Question them about their methods of compensation.  I’ve covered this before in episode 24 ” The ABCs of Financial Advisor Compensation”.  Does your advisor receive commissions as compensation by the selling of products to you?  If so, ask them what method they use to choose certain products and the incentive pay from the advice they give.  Other advisors may be compensated via some type of fee structure which can be fee-based or fee-only.  These are questions you should ask and have the advisor explain to you.

 

Method of Service Delivery (financial plan, IPS) – (18:45)
Next point is to have an investment policy statement (IPS for short).  But I want to expand that by saying that you should start with a financial plan.  A lot of people don’t agree with me here but anything that you do successfully in life usually starts with a plan, so why not your finances? When you focus only on investments how is the rest of your wealth to be managed?  What about tax planning?  Risk management?  Estate planning?  In sitting down with a financial planner, you should be focused on them taking a comprehensive view of your situation.

 

The “Sniff” Test – (21:25)
Passing the “sniff” test is another point I want to bring up.  I believe gone are the days where the advisor holds hostage all the information from the prospective client.  Especially if this leads to intimidation.  Nowadays, clients are looking for a collaborative experience and that means a sharing of information.  So if you are sitting with someone that does not seem they espouse that philosophy, you may want to keep looking.

 

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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The Maven of Financial Literacy
 

Dominique is owner of DJH Capital Management, LLC. a full service, comprehensive financial planning firm helping individuals build roadmaps to reach their financial dreams.