5 Questions for Evaluating a Financial Advisor

October 26, 2020

Financial advising

Whether you are looking for a new financial advisor, or just want to evaluate your current one, there are a few questions you should ask to ensure that the advisor is right for you. This will help you choose the type of advisor and working relationship that aligns with your goals and objectives.

1. Is the Financial Advisor a Fiduciary?

The number one question you should ask when evaluating a financial professional is if the advisor is a fiduciary. Fiduciary advisors are duty-bound to put their clients’ interests before their own and are held to the highest standard of financial advice. They must make recommendations based on what is best for you and your situation. 

Non-fiduciary advisors are only required to make recommendations that are suitable for you and your situation. This means that a non-fiduciary advisor may recommend an investment that is not in your best interest. This type of financial advice creates a conflict of interest between you and the advisor and may result in less than ideal recommendations.

2. How Is the Financial Advisor Compensated?

Fiduciary wealth advisor

There are three main ways that financial advisors may be compensated: Fee-only, fee-based, and commission-only. Fee-only advisors are compensated solely by the fees they charge their clients for services. Fee-based advisors are compensated through a combination of fees and third-party commissions. And commission-only advisors are solely compensated by third-party commissions.

Is the Advisor Fee-Only?

When selecting a financial advisor, you will generally want to make sure that they are a fee-only advisor. This eliminates any conflicts of interest that can arise from the advisor receiving third-party commissions. With most fee-only relationships, the advisor benefits from your investment growth. This helps align the advisor’s goals with yours, to grow your wealth!

How is the Fee Determined?

There are a few ways in which the advisor’s fees can be assessed. The most common fee model is based on a percentage of assets under the advisor’s management. As an alternative to asset-based pricing, some advisors charge flat annual fees, fees for individual services, or hourly consulting fees. In addition to understanding how fees are determined, it is important to know what services the fees include. 

3. What Services Does the Financial Advisor Provide?

Advisors have different areas of focus and it is important to choose an advisor that provides the services you need. Some advisors only offer investment advice while others provide comprehensive services including investment management, financial planning, tax preparation, and estate planning. For example, if you are looking for an advisor to help you plan for retirement, make sure they have experience with retirement planning. Additionally, it is a good idea to consider what services you may need in the future, not just what you need right now.

4. What is the Advisor-Client Relationship Like?

Financial review

A good advisor-client relationship is vital. Your advisor needs to know your financial situation and personal limits regarding things like risk. At the same time, you need to be able to trust your advisor’s recommendations. To get an understanding of what your relationship with the advisor may look like, here are some additional questions to ask.

How Will You be Communicating?

When it comes time for reviews, how will you and your advisor be communicating? Are you going to have in-person meetings, video calls, phone calls, or email correspondence? Make sure you are comfortable with whatever form of communication the advisor uses.

How Frequently Will You Communicate?

It is also important to set your expectation for the communication schedule from the start. How often does the advisor communicate with his or her clients and how frequently would you like to communicate? Will the advisor communicate with you on a regular schedule or only as-needed?

What Information Will You Receive?

Most advisors provide periodic information to keep you up to date, like account statements and performance reports, as well as market and economic commentary. In today’s digital age, many of these items are delivered electronically. Ask the advisor what information you will receive as a client and whether that information will be delivered electronically or in paper form.

5. What is the Financial Advisor’s Investment Philosophy?

Investment savings plan

Investment philosophies come in two main categories: active and passive. Active investing is a more hands-on type of management, while passive investing utilizes index funds with less buying and selling. Some advisors prefer active management while others use passive investing. What is most important is that the advisor’s investment philosophy matches your own. If you are looking for active management, you may not want to choose an advisor with a passive investment strategy. Regardless of which philosophy an advisor follows, both styles of investing are beneficial for long-term growth.

Trinity Wealth Management

If you are looking for a financial advisor, or you would like a second opinion review of your current advisor, contact Trinity Wealth Management today. Our professional team of fiduciary advisors will always put your best interest first as we help your financial dreams become a reality. We look forward to hearing from you soon!

The commentary on this website reflects the personal opinions, viewpoints, and analyses of the Trinity Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Trinity Wealth Management, LLC or performance returns of any Trinity Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Trinity Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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