5 Questions to Ask When Selecting an Advisor

What’s in this article?

• The Importance of Finding a Good Fit
• What does a relationship with you look like?
• What’s your investment philosophy?
• How are you compensated?
• What are your qualifications?
• What sort of digital access do you provide clients?
• Finding the Right Advisor for You

People choose to work with financial advisors for a myriad of reasons, often expanding well beyond just buying and selling investments. Advisors can help you build a long-term financial strategy, navigate tax obligations, plan your legacy, manage your company benefits, exit a business or job, prepare for retirement, create an estate plan to protect your family, plan a philanthropic program, and generally help you reach your financial goals. Most importantly, a financial advisor can serve as a specialist in areas where you may want professional guidance, and act as counselors and confidantes when you are seeking advice on important life decisions.

Your relationship with your advisor can often span decades and sometimes even generations, making it important to find the right fit and a good match. You want to find an advisor who aligns with you philosophically, who brings the right skills and expertise for your situation, and whom you feel comfortable with and confident in.

Here, we offer five questions (along with a handful of subsidiary questions) to ask prospective advisors to help you find the best match that will support your financial goals in the present and the future. Read or download the pdf here, or continue reading below.

What does a relationship with you look like?

Some advisors are very hands-on, always available for questions and arranging frequent check-ins, whereas others may prefer to meet only once or twice a year. There are advisors who focus primarily on managing your investments and others who take a broader financial planning approach. You want to get a sense of what services an advisor provides, how often they plan to meet with you (and whether those meetings are typically conducted in-person, by phone, or virtually), and how decisions will be made and executed.

It’s also important to understand how much flexibility there is should you want to adjust the cadence of communication; for instance, you may want an advisor who will be more available during periods of significant life changes, such as getting married, purchasing real estate, selling a business, retiring, etc.

Some additional questions to ask that will help you better understand how an advisor serves their clients include:

• What is your availability outside of scheduled meetings?
• How can I reach you in case of an emergency?
• How do you keep clients informed about investment and financial planning opportunities?

What’s your investment philosophy?

Investing is not a one-size-fits-all endeavor—each individual investor has different needs, goals, and interests. You may be most concerned with limiting risk, or you might be interested in finding unique and exciting investment opportunities off the beaten path. This question can offer valuable insight into an advisor’s approach, process, and the principles that drive their portfolio construction. It can also spur dialogue in areas you may not have considered, ranging from risk tolerance to tax efficiency. Additionally, you might have specific areas of interest to ask about, such as socially responsible investing or values-based investing—asking about these nuances can help you find an advisor who is aligned with your goals and interest.

Here are a handful of related questions that can help you get a better sense of your prospective advisor’s investment approach:

• Do you prefer passive investing, or do you use active managers in your portfolios? Or a combination?
• How do you select investment managers and what due diligence do you do ongoing?
• How do you benchmark client portfolios to measure their success?
• How important are investment fees as a criterion when selecting investment vehicles?
• Do you provide investment commentary and updates to clients?

How Are You Compensated?

Alignment of interests is a critical component for many investors—this refers to a circumstance in which when you do well, your advisor does well, meaning that they are incentivized to act in your interest. Understanding how your prospective advisor gets paid can help you evaluate where their priorities lie. There are generally three ways advisors are compensated:

• Hourly: in which the advisor charges an hourly rate for their time
• Fee-only: in which the advisor earns a flat fee or is paid a percentage of the assets they manage for each client. If your assets increase, the advisor earns more.
• Commission-based: in which the advisor is paid a commission based on the investment products they sell to you. Some advisors use a hybrid structure that includes both a fee and commissions (this is often called fee-based, not to be confused with fee-only).

As you learn how a prospective advisor is compensated, it will be important to understand whether some services are offered outside of that structure and if so, what additional costs you might incur. Keep in mind that investment fees are not generally included as part of the advisor’s compensation and will be an additional expense, usually charged directly from the portfolio.

These additional questions can help you know what to expect and prevent any surprises when it comes to fees and compensation:

• Will you acknowledge your fiduciary duty and serve as a fiduciary to me? (Advisors who act as fiduciaries are legally and ethically bound to act solely in the best interests of their clients.)
• Are there any additional service fees to be aware of?
• What is the process for terminating the relationship and are there any fees involved?

What Are Your Qualifications?

You have likely seen financial advisors with designation letters after their names, but what do these certifications mean? There are a number of different certifications an investment advisor or financial planner might obtain—many that focus on certain subspecialties and each with its own program and requirements, some more rigorous than others. Don’t hesitate to ask your advisor candidate about any certifications they hold and the process they underwent to earn them.

Here are a few of the most common credentials you are likely to encounter (this list should not be considered an approval or endorsement of any professional designation):

CFP® or Certified Financial Planner™: This certification comes from the CFP® Board and signifies broad expertise in financial planning, including taxes, insurance, estate planning, and retirement. The CFP® standard requires candidates to undergo rigorous education and training standards, meet minimum professional experience standards, and adhere to a strict code of ethics.

CPA or Certified Public Accountant: This designation is provided to licensed accounting professionals and is held by specialists in taxes and tax management.

CFA® or Chartered Financial Analyst™: This designation from the CFA Institute requires candidates undertake an in-depth education program of financial and investment topics that generally takes several years of study, including three rigorous levels of exams. CFA charterholders have demonstrated competence and extensive knowledge in economics, portfolio management, and securities analysis, who are also held to high ethical and professional standards.

Some other more specialized certifications you might see include the CPWA® or Certified Wealth Planning Advisor®, focused on high net worth wealth planning; the CEPA® or Certified Exit Planning Advisor®, focused on guiding clients through business exits; the CDFA® or Certified Divorce Financial Analyst®, specializing in divorce finance; and the CAP® or Chartered Advisor in Philanthropy®, a designation used by philanthropic advisors or specialists in philanthropic advising.

You can look up and learn about financial professionals’ credentials and designations on the Financial Industry Regulatory Authority (FINRA) website at https://www.finra.org/investors/professional-designations. This regulatory agency also offers a tool to research the background and experience of financial advisors and firms, available at https://brokercheck.finra.org/

What Sort of Digital Access Do You Provide Clients?

Most financial advisors will offer a client portal or app where you can view your accounts, find updated performance information, and receive and store important documents. But advisors use a variety of different software options that offer a range of features and present different information. Ask your prospective advisor to walk you through their client portal and demonstrate what information you will have access to. You’ll also want to assess how intuitive and user-friendly the software is, as that will impact your experience.

Some other questions to ask include:

• How often is the information in the client portal updated?
• What do you do to protect clients’ data security and privacy?

Finding the Right Advisor for You

As you embark on a journey to find the right person and firm to shepherd your wealth and guide you toward reaching your financial goals, taking a little extra time to research options can help you find the strongest fit for your needs. Most advisors and advisory firms offer free consultations along with financial assessments. They are typically more than willing to meet with you to discuss their process, services, and philosophy. Just engaging in the process may help you better identify your long-term goals and financial values.

These questions can serve as a good starting point in your search. As you evaluate an advisor’s approach and qualities, don’t discount your intuitive sense of them—after all, you want to find someone you feel comfortable with and communicate well with, and whom you feel you can trust. Coldstream is here to help; please feel free to reach out if you would like to discuss how we can play a role in helping you secure your financial future.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the U.S. The CFA Institute owns the certification marks CFA® and Chartered Financial Analyst®. CDFA® and Certified Divorce Financial Analyst® are trademarks of The Institute for Divorce Financial Analysts™. The Certified Exit Planning Advisor (CEPA^®) credential is issued by the Exit Planning Institute. Investments & Wealth Institute® (the institute) is the owner of the certification marks CPWA® and Certified Private Wealth Advisor®. The Chartered Advisor in Philanthropy® (CAP®) credential is issued by The American College of Financial Services.