Below are a few questions that you can ask if you’re shopping for an investment advisor. Some things we’d be looking for in the answers are (1) a willingness to listen to and support you; (2) a sense of openness and transparency; (3) that they have clear processes that they follow in terms of investing and tailoring portfolios to their clients’ needs; and (4) a passion for the work and for supporting clients. In my opinion, attitude and motivation are at least as important as the technical details.
With that, here are some specific questions you could explore with her or him:
- How are you compensated?
- Do you act in a fiduciary capacity?
- Do you try to “time” markets?
- Do you use active or passive investing?
- How do you determine how much money should be in stocks, bonds, foreign, U.S markets, etc?
- Are you worried about the next market crash?
- How will you tailor the portfolio to our particular needs?
- How can I best evaluate performance?
- What is your overall past performance (net of fees)?
If you want to dig a little deeper, the following two questions could be especially revealing.
- Could you tell me why the last two clients that you lost left you? And the last one you let go? This is a relationship business, and if you aren’t happy, you’ll probably suffer financially. So find out where the possibility of a conflict arises. The answer could be as plain as people moving away or retiring. But there may be a pattern.
- Was it annoying to have to answer so many questions? An advisor who is truly on your side wants to talk about the process and his firm’s results. The answer you want is: “The relationship works best when a client is engaged and questions the advisor on an ongoing basis.”