This is a guest post by Jeff Rose, an Certified Financial Planner from Illinois. Rose is also the author of Good Financial Cents, a financial planning and investment blog. Before reading his article, you may want to begin with two previous guest posts from Dylan Ross: What is a financial plan and why have one? and When and how to hire a financial planner.
When meeting with a financial planner for the first time, many people are hesitant to ask questions because they don’t want to sound “dumb”. But dumb is not asking any questions at all.
Ultimately, you have the opportunity (and responsibility) to interview the planner to see if he is the right person to manage your investments. Before you decide if a particular financial planner is right for you, you should ask him some basic questions.
What will I find on your U4?
Remember when you were younger and you could always hide your grades from your parents? That was until the report card was sent home. The U4 is the “report card” of your financial planner’s background. That means if he’s done anything wrong and a complaint has been filed against him, it will be shown here.
By asking the financial planner if there’s anything on his U4, you’re finding out if he’s committed any wrong-doing. The best part is that if you don’t believe the financial planner’s answer, you can always log on to finra.org to find out if the financial planner is telling you the truth.
How much do you charge?
You would think that this would be a common question. But many folks feel that it’s impolite to ask how much a financial planner charges. If you were getting your car worked on, wouldn’t you ask the mechanic how much it was going to cost? Don’t be shy in asking this question.
There are many different ways that financial planners make money. They may be commission-based, fee-only, fee-based — or a combination of the three. Asking what the planner charges will help you know exactly what you are paying throughout the working relationship. If she explains but it still doesn’t quite make sense, have her put it on paper so that it’s crystal clear.
Those are the two basic questions. Here are some more in-depth questions you could ask:
How many clients do you have?
Here’s a quick story to help drive this point home.
At my old firm, an elderly gentleman walked into the office to drop off a check. As the elderly man waited, he struck up a conversation with one of the advisors in the office. They were from the same hometown.
After the man left, the branch manager — also from the same hometown — approached the advisor and asked, “How do I know that guy?”
“Well”, the advisor said, “that guy is from our hometown, and he’s actually your client”.
The branch manager had more clients then he knew what to do with. So many, in fact, that he didn’t even recognize one who had walked into the office. This is a prime example of how many advisors take on more than they can handle. Asking your planner how many clients they have will help you understand how much you will be serviced going forward. Do you want to be treated as a person or just a number?
What do you drive?
This is a good question to ask for many reasons.
For one, if you have an issue with working with somebody that drives an exotic foreign car, then maybe this planner doesn’t have the same values that you have. Also, if you’re “green” conscious and want to do green investing and your financial planner drives a large SUV, then maybe you both won’t see eye-to-eye.
Asking what she drives will help understand whether you and the advisor share core values that will enable you to work together successfully over the years to come.
Have you ever been fired?
Ask your planner if he’s ever been fired by a client. In our industry, it’s actually very common to start a relationship with a client but then have things things not work out. Sometimes it could be the planner’s lack of service. Other times it could just be a clash of personalities. Nonetheless, the planner should be very open if he has been fired before.
If the advisor is able to share a few stories, it will help you to understand why a client would have gone elsewhere. It’s an uncomfortable question, and seeing how an advisor responds should give you an indication of the character of the planner.
What’s in your portfolio?
If the planner is describing her investment strategy as implementing proper asset allocation and diversification, yet when you look at her portfolio it contains only technology stocks, will you really want to follow her advice? Shouldn’t she practice what she preaches?
If the financial planner is willing to show you some of the holdings in her portfolio, it might help you to believe in her investment strategy. Would you trust somebody selling Goodyear tires if she had Bridgestone on her car? Exactly.
Are you married?
You need to really know your financial planner. Face it: When you meet with a planner, they get insight into your entire life history. Isn’t it fair to get insight into his life, too? If your planner has (or had) a rocky home life, then maybe he has too many things going on in his personal life to truly service you and your needs going forward.
Does that mean a planner has to be married to be able to take care of you? Of course not. I used to work with a planner who was having marital problems and it strongly affected his business. He wasn’t able to focus on his clients, and because of that he eventually got out of the business. You just want to make sure that a planner can focus on your needs.
How long do you plan to be in the business?
If you search for a financial planner and find one that fits your needs, what happens when she retires? Does she have a sufficient exit strategy plan in place? Maybe a younger advisor that is going to fill her shoes. If so, does that younger financial advisor fit the criteria that you used to hire the first advisor?
Getting a sense of how long your new-found planner will be in the business, and what her plans are after she leaves, may help put you at ease knowing that you made the right decision for years to come.
Have you met with a financial planner? If so, what did you ask before hiring her? Are there other questions you wish you would have asked? Share your thoughts. (And once you’ve found an advisor that works for you, check out my article about questions to ask your financial planner about your situation.)
Jeff Rose is an Illinois Certified Financial Planner and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.
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So you’re telling me a financial planner with a bright yellow Porche may not be the right planner for me? I should probably give him a call…
I met with a planner once but it was merely for research. I didn’t ask about their personal life but did ask all the other questions. One additional question I had for them was a work history. Where did you work before coming here? Why did you leave your prior position? How did you come to work where you do now?
I like advisors that used to work for commission but hated it and want to work fee-only.
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I would also be interested in talking to other clients.
Thanks,
Nate
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Great post Jeff. I believe it’s good to know what’s going on in their life because you want someone that is not only ambitious and intelligent but that they have a clear mind while dealing with your money.
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Great article. In the current economic climate, you need to be especially careful when talking to anyone about anything regarding money. There are plenty of shady people out there right now trying to simply make money off of you. Getting a good financial planner that you can trust and you see eye to eye with is important.
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I particulalry liked the idea of asking “what do you drive?” I was looking for a contractor once to do some work around our old house, and the first guy rolled up in a brand new Hummer with a custom ad wrap of his company logo/graphics. The second guy pulled up in a 15 year-old pickup truck with a rusted hood and an old toolbox in the back. Guess which one I hired?
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I have a somewhat different take on a couple of your questions:
How many clients do you have?
A financial planner who makes $70k/year from 2 clients has to make, on average, $35k off of each of them. His salary can’t come from anywhere else, right? Being treated like a number may have some advantages if it means you’re sharing the cost of the planner’s salary with more people. That is, I would expect that a multimillionaire can afford to pay the full cost of one or more financial planners, while a blue-collar guy pulling in $45k/year may not be able to afford such individualized treatment, nor should he expect his planner to be able to focus primarily on him.
What’s in your portfolio?
I understand the ‘practice what you preach’ comment, but a financial plan should reflect the financial condition and goals of the people being planned for. A 45-year old financial planner with a certain salary, unlimited access to his own expertise, 2 kids in college, and a fully-paid mortgage who suggests a copy of his own portfolio for a married 25 year old client or a widower 65 year old client with completely different financial situations from each other and from him wouldn’t seem to me to be doing his job. That’s not to say that asking him about his plan for himself and why it differs (or doesn’t differ) from his plan for you isn’t a good idea. Maybe in addition to asking him what’s in his portfolio, one should also (or even first) ask him for his financial plan for himself, and how well he’s following it.
Full disclosure: I’m not a financial planner, nor have I ever used one.
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Some of these questions are great, but the ones about “What do you drive”, “What’s in your portfolio”, “Are you married” and “How long do you plan to be in the business?” are completely irrelevant.
I don’t really care what you drive. If your fees are fair and you do a good job I don’t care if you walk to work or come in a chauffeured limo. Same with the marriage question. Your personal life is your business. As long as you are professional enough to not let it affect your work, I don’t care what’s going on at home.
The portfolio question isn’t relevant either because everyone’s needs are different. The tire example is only relevant if the tire dealer drives the same exact car as you. I wouldn’t expect someone who is 55, married, kids in college and a parent with medical problems to have the same holdings as someone who is 30, young child and healthy parents. Comparing portfolios is only relevant if your needs are the same.
Unless the guy is 90 years old or has a for sale sign in the yard, I have to assume they are planning to stay in the business for some time. That question is a little premature for a first meeting. You may decide it will not work out with this person so that becomes a moot point. And just because they may not be planning to do this for the next 30 years doesn’t mean they can’t help you today.
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I hardly ever comment, but I just want to say that I really disagree with asking them if they’re married. It wouldn’t be your business to ask your nurse if she had any chronic health problems, and the marital status of someone (although usually pretty obvious by the ring) is really none of your business. They are merely a professional offering you a service, and those people are still entitled to their own privacy.
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@#5 – Luke, I really don’t know which one you hired.
Some people would hire the guy with the old pick-up, because they’d think the guy with the Hummer would charge far too much for his services (having acquired the Hummer by bilking his customers and then squandering the money on status symbols).
Other people would hire the guy with the Hummer, because they’d feel the guy with the ratty old pick-up/tools wouldn’t care enough to do a good job on their house (if he can’t care enough to take care of his tools and keep them rust-free, why would he do a good job on the home repairs for others?)
Either line of thought appears to be valid. Which one did you hire?
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It may well be illegal to ask if your planner is married. I don’t know the law on contract folks like planners, but an employer definitely can’t ask about marriage, because of discrimination worries. Mostly it’s to prevent people from ducking maternity leave by not hiring people who might get pregnant.
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I might also ask about the person’s education history. I don’t think it matters as to whether the person can be a competent planner. I’m sure a person who studied music theory could learn to be a planner afterward, but I think it’s a valid getting to know you question and it gives them a chance to explain how they got from here to there. Good post.
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I agree with Brenda. I’m not sure which contractor Luke hired either.
I would personally hire the guy in the pickup truck, so maybe the answer to this question isn’t so obvious.
In fact, I would rather hire a financial planner that drove a cheap, used car. That shows to me that the person values money to not waste it on such a luxurious, depreciating asset. It would look to me that the person values keeping costs low.
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Why don’t people look at this like a job interview? That’s essentially what it is, you are hiring someone to do work for you.
Here’s some better re-phrasing of the questions so they actually get the answers you want.
“What will I find on your “report card”?”
What’s really being asked here is “What’s on your U4, and can I see it?” Ask that.
“How much do you charge?”
Ask for them to provide a written fee schedule and explain it to you.
“What’s in your portfolio?”
A valid question, but verging on the personal. They may be in a different stage of life than you. They may be more risk averse in their personal lives (and you might be more risk tolerant). Perhaps you should ask them to define their personal tolerance for risk, or for them to explain how they manange their personal investment risk/reward ratio.
“Are you married?”
This question is insulting and rude, and is verboten during real job interviews. Marital status has ZERO (let me repeat, ZERO) impact on a business relationship. Maybe they are divorced because their spouse cheated on them. What’s next, “Do you have children?” and “Where do you go to church?” or “Are you gay?” or “Have you been hospitalized in the past year?”. Keep the interview on BUSINESS and RESULTS, and keep the personal life PERSONAL.
Yes, you are going to let them into the details of your personal finances — but are you going to tell them about YOUR personal life? No — because it doesn’t matter one whit.
“What do you drive?”
Even more irrelevant than the marriage question. If you want a FA that’s “green”, find one. I don’t care if my FA walks to work or drives a Ferrari. The real question is more like
“Explain how you have helped other clients manage their wealth, with supporting examples of ROI, debt reduction, etc”
this also leads to questions like
“How do you handle rocky financial times?”
“In the event you are unreachable, what happens?”
“If you are unable to work for some reason, what happens?”
The bottom line is that you should think up questions that will require the FA to product evidence of past performance that will indicate future success. Using open-ended and vague questions and then interpreting the answers based on your worldview and assumptions leads directly to misunderstandings. Ask direct questions and keep asking for direct answers.
Google “Performance Based Interview Questions” for more examples, and adapt them to your interview with your FA.
e.g.
http://itcoolguy.wordpress.com/2008/04/30/performance-based-interviewing/
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I like asking what the financial planner drives, but I’d follow up with “Why?” and “What would you like to drive?” The answers might be revealing.
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UnderstandmentJones beat me to the comment
I would never ask if someone was married. I would be offended if someone asked me because people either assume 1) if you’re a woman and married, that means you must want kids and will be taking time off soon to have them, and your family will be your priority rather than your work. Or 2) If you’re not married, there is something wrong with you and you don’t really understand the demands of family life.
Chances are what you really want to know is if your financial planner has the experience and knowledge to understand your circumstances. Ask about that instead.
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Note that the U4 vs. report card thing is my doing. Jeff wrote the question as asking about the U4 but I thought it was too esoteric. I’ll fix that for future Googlers. I’m in the airport now though and writing on my phone so can’t make the change.
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What a useless post. What do you drive? Are you married? Are you kidding me?
What if *she* lives in New York City and doesn’t need to drive?
What a pathetic, small world view post. How was your tea bagging party in -yawn- Illinois?
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You said it Paul. I’m actually unsubscribing from this site due to this offensive post.
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I’m with most of the other commentators here with regard to the marriage question. It really made me uncomfortable when the author stated that one should ask if the advisor is married. I think it’s totally out of bounds and would be uncouth to ask. Since this is somewhat similar to a job interview, I would find it bizarre if someone asked me that when I was interviewing for a job.
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I think it’s totally inappropriate to ask a potential planner some of these questions. If fact, it might even be illegal to ask if he/she is married.
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The system is not set up for your “average joe”, unfortunately.
If a planner charges 1% and you have a $100,000 account (which most people do NOT), the revenue for the advisor is is $1,000 per year… Wait.. ACTUAL revenue the advisor takes home is roughly half that, depending on where they work.. Not it’s $500… Wait.. Taxes, etc.. Now the advisor is taking home about $350 per year.
Don’t complain if the advisor has a few clients. He/she has to eat, too.
For what it’s worth, I subscribe to the asset based fee. That seems to best align the client’s interests with the advisor.
Disclosure: I am a financial advisor
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I’ve met with a financial planner and having done so, I feel that some of these questions just don’t work. They are great in theory, but when you’re sitting there face to face with another human being, I hope most people would not be so rude and intrusive into matters of someone’s life that have only tangential bearing (if any) on your business relationship.
A guy driving a Benz is incapable of relating to or understanding me because he drives a better car than me? Really? Knowing what kind of car a planner drives tells you almost nothing about that person and it is asinine to assume it does any more than what their favorite color is. There are certain professions where there is an unwritten rule that those in the profession must spend money on themselves so as to appear successful. Law and finance are two of those. Your planner could be the most down-to-earth person, but might drive a higher end car because he or she is going to be judged by it for good or for worse and that’s just the nature of the business.
Married? Same thing. I can see it now: “Even though I’m not married, I feel it is my duty to you as my clients to study up on these things you have called “children” and research what should be done in regard to their future well being. Being single, I am like the grasshopper and have no care for the future and find your married life with its entanglements are completely foreign to me…”
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Every dollar a so-called “advisor” makes is a dollar that comes directly out of your retirement savings. Actually, it’s $2-4, because he/she hadn’t taken it out this year as commission, it would’ve doubled or quadrupled, depending on how much time it would’ve sat in there and grown.
You don’t need a financial advisor. Fire him/her. Spend a little time doing your own reading, invest in the lowest-fee index funds you can find, spread your money around a bit, and keep other peoples’ hands out of your cookie jar. Nobody cares more about your wealth than YOU. And nobody knows what the market is going to do, no matter how much they say they do.
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“Are you married?”
Seems that question has caused a bit of a riff
First, as a financial planner let me say that I would not be offended if somebody asked me that question. In fact, I’ve been asked that several times.
Let’s see if I can explain my position. I’m a very open person and want each client to feel like I’m not just their financial planner, but I’m also their friend. Maybe it’s my Midwest upbringing, who knows. But I just feel more comfortable opening up to a client especially after I’ve asked them to open up to me. When I meet with a client, it’s just more than just numbers and statements. Sometimes I feel like I’m therapist discussing all their struggles and also greatest accomplishments.
I know when I hired my CPA, I wanted to know more about his home life. Why? Because I’m hiring a person that will have an instrumental part of my life for many years to come. I’ve been surrounded by advisors and other professionals that have had rocky home lives and I’ve seen how it affects their work. In the case of the advisors, it prevented them from focusing on the client. If I were hiring someone that would have such a enormous impact on the rest of life, I would not know as much about them as I could. Learning more about their home life is one easy way to do that.
And by the way, “Yes, I”m married”.
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Great post! I think all the questions are good to ask! People need to remember that when you are “interviewing” a financial planner, you are essentially trying to get to know them on a business level and a personal level to see if they are the right fit for you. Although it is similar to a job interview…the customer interviewing the FA is not the same as an employer interviewing a potential job candidate and will not be “in trouble” for asking if the FA is married or what kind of car they drive. These are actually legit quesitons that can reveal a lot about a persons character and great questions to ask when you are trying to get to know someone.
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I asked the planners I was interviewing if I should pay off my house. This draws many responses but gives you a great perspective on their financial philosophy.
As does asking what they drive.
As for asking if they’re married – - obviously it’s irrelevant to some but very relevant for me. Not only did I hire a financial advisor but a ‘life coach’ of sorts. If he’s going to be advising me what to do with my money based on my life I want him to be able to see things from my married-with-children point of view. To not take this into account would be neglegent on my part.
I’m not Catholic but if I were I’d be uncomfortable taking marriage advice from a never-been-married priest.
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A lot of these questions are important to see how the financial planner will react to them. Often times, it’s more important how someone responds to a question than what their answer is.
I actually did study music composition in college, but I can tell you how that relates to what I do now (life insurance related). You want to know that your financial planner is a thoughtful person who is ready to take appropriate actions – or else why hire them?
With complex and abstract concepts, it’s important to find a good advisor. Without an easy way to simplify the conversation, having an in depth conversation is a good way to start the search.
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+1 to “some of these questions would be illegal if they were asked in a job interview.” The would be illegal for a good reason – because they are both invasive of the interviewee’s privacy, and irrelevant to their qualification for the job in question. That is just as true for a financial planner.
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For the people who are “OK” with answering personal questions in a business setting, keep in mind a couple of things:
- It’s possible that your “great” home life may unravel. Your spouse could leave you. You could leave your spouse. Your spouse could die. Your kids could get some horrible disease. Do you want every client coming in and saying “so, how’s the wife and kids?”, then either being forced to lie, or having to inform your client that something horrible happened?
- It’s possible that you will encounter people who take on life differently and actually LOSE clients because you are so outgoing about your life. Say you are a politically conservative, gun-owning, evangelical Christian who eats meat at every meal. Your potential client is a liberal anti-gun activist who is a practicing Wiccan and aslo a vegan. You have the expertise they want, they want to pay you. How does home life enter into it?
- Do you get into discussions of home life with your mechanic, plumber, doctor, dentist, boss, etc? Would you do so on a job interview? How would you feel if someone asked you questions about your sexual orientation, marital status, race, etc during a job interview? If you still say “yes”, keep in mind that Federal anti-discrimination laws exist because all of these things have been used in one way or another to keep people out of jobs.
Also, keep in mind that even “bad” answers on the surface may end up to be GREAT answers from a person who is going to be your FP. For example, someone who has dug their way out of debt, gone through bankruptcy, made really crappy investments, etc may actually be better at explaining things having been there themselves than someone who’s always been an ace with financial matters. Look up Dave Ramsey as an example. Millions of people take his advice, and he “got” a lot of what he knows by losing it all!
And, to sum up, a couple of quotes to keep you wary:
“Don’t ask a question you don’t want to know the answer to”
and
“If you don’t have anything to hide, then you have nothing to fear”
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Last week J.D. drove a domestic car. This week he’s driving a foreign one. Man, that guy must no longer share my values, I’m totally not reading his blog anymore. Do you seriously think it would be OK for someone to not hire you because they didn’t like your car?
And what are you supposed to do with the answer to “Are you married?” If they say “no” are you supposed to get up and walk out and accuse them of not being middle-America enough to work with your finances?
These are ridiculous questions. You might as well ask who they voted for in the last election, or whether they follow the same sports teams you do — but you’re not trying to hire a friend, you’re trying to hire someone who will be good at investing your money.
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I think I might start with a rather open-ended question, such as “why should I hire you?” I suspect the response will tell you 90% of all you need to know.
If the financial planner launches into a pitch for a particular product, be wary.
If the financial planner assures you he or she can “beat the market”, be wary.
If the financial planner tries to impress you with complex jargon, or claims to have proprietary systems for money-management, be wary (think Madoff, here).
When all is said and done, as others have noted, it’s a job interview. Ask that initial question, then go with the flow.
Just my $.02
Bozo
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Before hiring a financial planner, there is an important question you should ask yourself: Does this person really know more about what is best for me financially than I do?
For some people – those willing to do a little work on their own – the answer will be “no.”
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I have to agree that you want the planner’s values to be in line with yours. For example, I have two friends who are accountants and one offered to helped me plan things. After a bit of discussion I found he was more than comfortable with having a lot debt, something that gives me nightmares. His lifestyle and hobbies are very different than mine and he didn’t identify with spending money on A instead of B, like he would.
The other friend however is living a lifestyle that I want. In fact she’s 10 years older than me and it’s my goal to be ‘there’ in about 10 years. She hates debt and kills ASAP, and we share hobbies and long term goals. I feel comfortable asking her advice and taking her direction with my finances because she’s been where I am, and ended up where I want to be.
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Asking what they drive is an interesting move and one which could be quite revealing, but “Are you married?” is totally inappropriate and won’t tell you much! In fact, it may make them dislike you.
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Strongly disagree with the author! Marital status has nothing to do with how well an advisor can manage your finances. Unfortunately what’s implicit in this article is that a financial advisor is only worthwhile if he has a beautiful wife, 2 kids, a white picket fence, and is a member of the PTA.
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Do you really need to hire a financial planner in the first place? What will a planner do? Help you “beat the market?”
Prudent investors don’t need to beat the market. So joining the market with index funds would generate better yields over time than any financial wizard could.
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Jeff,
You make a logical point regarding knowing about someone’s “home life” to make sure it won’t take away focus from their work. But, I still don’t see the point in asking such questions, because in addition to being presumtive and possibly discriminatory, they are unlikely to yield useful information. If I asked anyone during a one of my first few meetings with them about their marriage, I doubt the person would say, “actually my wife/husband is cheating on me, we fight every night, and I’m pondering a messy divorce.” Or, “my kid is addicted to meth, which is requiring a lot of energy that I normally focus on work.” In fact, people with the most messed up home lives are often good at hiding it. Shall we start counting the number of preachers and Republican leaders who were representing one reality of their home life while secretly sleeping with gay men, seeing prostitutes, etc. Furthermore, learning about someone’s “home life” isn’t particularly useful for very long. Lots of people suddenly have their home life rocked by an unexpected divorce, a death, kids with serious problems, etc. A stable home life one day doesn’t necessarily mean much six months later. Instead, I would evaluate someone based on their performance in the OFFICE. Lots of professionals in all fields have problems at home that they keep separate from work.
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“Are you married?” You got to be kidding! Whether or not they’re married could depend on innumerable factors, few if any of which would impact their job. And if I were asked that, I would be insulted!
Besides, do you think they are going to answer that question with, “Yes, I’m married, but we’re having problems”? No! If they’re professional, they’re not going to spill the beans on their home life. So even if you see a ring, there is no guarantee of marital bliss.
Likewise, if they’re single it doesn’t mean that they aren’t a catch — nor does it mean that they don’t have other obligations that would distract them from work. Who knows?! And to assume would just be dumb, imho.
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The Wall Street Journal seems to have covered this exact same topic a few days ago. They came up with a significantly different list of questions.
http://online.wsj.com/article/SB123913983139498483.html
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@ Kevin #11:
You are right, but I can also change my own oil if I read the manual, I can mow my grass if I choose, I could make my own pizza if I read a cookbook, I could probably write my own blog if I choose to learn WordPress or the like…
Fact of the matter is financial planning/advising, whatever you want to call it is a service, no different than any other. Some people are just not comfortable or inclined to do it themselves, just like any other service. I don’t feel it is fair to demonize one service over another. Do you have any idea what the profit margin is on an oil change? Or yardwork? Or your taxes? I guarantee it’s more than 1%.
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The only FP I’ve ever talked to told me about his wife and his family and I never had to ask. I think he did that before I told him much about myself, to make me feel more comfortable telling him things about my life/family plans on the more personal side. I thought it was nice that he was open about it. I probably would not have asked.
I think the point of the post is that a good FP is an open book and has nothing to hide, personally or professionally.
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@ Jeff #24: Would you feel differently about being asked if you were married if you were a woman? It seems to me we females face more discrimination in that area than men.
For instance, people don’t look at you and wonder when you’re going on maternity leave or if you’ll decide to stay home with the kids for a few years. (Incidentally, women also bear most of the burden of caregiving for elderly parents, not just children).
It’s also more socially acceptable for a man to be single into his thirties and forties than a woman.
It’s great that you tell people you’re married — but it’s not likely you’d disclose all your personal problems in an initial meeting with a potential client. Those issues you’ve seen in others that you’d like to avoid simply aren’t going to come up in conversation.
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On a slightly different note, how does one BECOME a financial advisor? What sort of training is required/recommended? I’m just beginning work on my accounting degree, and even if I don’t become a financial advisor professionally, I’d love to have some of the training for my own family’s use.
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The U4 question is a very useful one–especially if you looked them up before and would like to see how they explain anything bad you saw on it. I’d probably bring up any specifics I found on it, in fact.
As for married…I think it would be useful for a client to know whether or not they’ll be getting their planner’s attention (and this goes beyond planners, we once had a carpenter who took months to finish some repairs because of a family issue, very difficult). But I don’t think that in an initial interview you could ask any questions which would help you really know this. Being married isn’t a cure-all, I know lots of miserable married people and stable single people. And vice versa. People always want to hide their problems. I wouldn’t ask it because I don’t think I could learn anything useful from it.
Instead, I might ask some variety of: will you be able to give my account the attention I need to succeed financially?
Anyway, I enjoyed this post and some of the comments made me laugh–especially the people who are never coming here again after having read a guest post they disliked. It’s sad and kind of amusing. Thanks JD & Jeff.
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#40 has the best point of all!
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@ Beth
It’s hard for me to answer your question just because I’m not. But you do make a valid point.
I think when people meet with me for the first time they want to know if I’m a real person. Me, being a family man, definitely doesn’t hurt. I could imagine it would be tougher as woman. Thanks for pointing that out.
@ E
Check out an interview I did at The Art of Manliness. I addressed some of your questions.
http://artofmanliness.com/2009/03/11/so-you-want-my-job-financial-planner/
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I think that statement adds to the confusion about what financial planning is and isn’t. While some financial planners may also manage investments, financial planning is not the same thing as investment management. There are a few other points in this post that I think need to be clarified.
Checking a planner’s record on the FINRA Web site only applies to planners that also work as brokers. FINRA regulates brokerage activities, not financial planning. Planners that don’t also represent brokerages will not be on the FINRA site at all. Planners that operate as investment advisers whose activities result in violations are reported on the Disclosure Reporting Pages of the SEC’s form ADV, and if they are a CFP, on the CFP Board of Standards Web site as Public Disciplinary History.
Also, fee-only compensation cannot ever be combined with any other form of compensation, the “only” in “fee-only” is absolute, no exceptions. There is no such thing as “fee-only and fee-based” or “fee-only and commissions.”
I’m not sure that I agree that a large number of clients would be a bad thing, especially if you only require a minimal amount of advice. In that case, one could argue that a planner making a decent living on only a small number of clients may be over charging them. Also, how will you know how many clients a planner can handle? Maybe one planner can only handle 50 while another can handle 550.
What’s in the planner’s portfolio is irrelevant. That’s like not trusting your optometrist because he recommends contact lenses but wears glasses. Clients should not expect the planner to make recommendations that match to what he or she invests in. Not every client’s investment portfolio should look like their financial planner’s. Practicing what you preach should be using appropriate investment strategies based on the client’s specific planning objectives if that what your preach.
I don’t really get the “what car do you drive?” or “Are you married?” questions either. I can think of a few more important questions I’d want to know the answers to. Beside, cars don’t necessarily translate to values. The price of a car probably has more to do with priorities than values. By the way, I’m a financial planner and drive a 10-year-old mid-size sedan to the office on days I don’t ride my bicycle. What could you possibly conclude that is relevant about my values based on that?
And, I don’t think that I am going to go deep into my own personal life and relationships with a potential client. This is a professional relationship; the information requested and used by a financial planner is only that which is necessary to perform a professional service. The client is covered by privacy laws and professional ethics rules that do not cover how a planner’s personal information may be used by a client.
Here are three additional questions I think are worth asking if the service you are actually looking for is financial planning advice:
1. Will you, at all times, place my interests ahead of your own or your firm? (The answer should be yes)
2. Are there ever any exceptions to placing my best interest first? (The answer should be no)
3. Could you ever stand to profit if I follow the advice you give me? (The answer should be no)
And get the answers in writing (just to be sure they’re willing to put it in writing)!
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I love your site, but this article is mostly B.S. in my opinion.
1. Many CFP’s that I would recommend to people won’t have a U-4 at all, since they are fee only advisors and governed by the SEC and not FINRA. This shouldn’t be counted as a strike against them.
2. What car does your advisor drive? Who cares? Do you ask your doctor what kind of car they drive? Does it make a doctor’s expertise any less valuable?
3. What’s in your portfolio? Hopefully the advisor’s portfolio reflects what is appropriate for them based on their financial plan.
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#43 E
Becoming a financial planner is not particularly hard. Being a SUCCESSFUL financial planner/advisor is the difficult part.
You start off by getting hired by a brokerage firm of some sort to sponsor you to take your licensing exams. You study for and pass the series 7 and (in my case) the series 66. You also will likely have to take the insurance and annuities exam. Anyone with a decent brain can pass all those exams.
The most difficult part is the one I have the hardest time with, and coincidentally why I will not likely be a financial advisor much longer.. SALES.. You have to get people through the door, you have to cold call, schmooze, bang on doors, etc. and try to convince people why YOU, a newly minted FA who has been in the business 3 months, are qualified to handle THEIR life savings.. Starting to make sense? It is a tough gig. The most successful financial advisors are NOT the smartest and are likely NOT the most ethical. They are the best SALESMEN. That’s why this profession, in general, gets a bad rap.
If you really want to become a FA, find another established FA and try to work for him/her. Eventually you’ll get the know-how, contacts, and confidence to be successful in this business. Unless, of course, you are already a great salesman with an entrenched network of wealthy people who trust you.
BTW.. Being a FA and passing the exams won’t do much for your own family use.. Just read and learn what you can online. That is sufficient.
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Jeff: In your comments and from your article, you come across sounding like someone who is using stereotypes and privilege (being a man, etc.) to woo clients and be “slick.” In the comments you write that “being a family man definitely doesn’t hurt.” I want a financial planner who is good at her/his JOB, not one who tries to impress me with his wife and kid and the white picket fence. And based on divorce rates and a million other statistics, many people living behind the picket fence and the “family man” facade are in fact miserable, immoral or crooks (many of the crooks tied to our current financial crisis seemed like “family men” didn’t they?). I don’t care if my financial advisor has been divorced 3 times, has no kids or has 5 kids, is gay/lesbian, is dating 4 people at once — all I care about is how they manage money, how they treat me, their past behaviors with clients, and their professional behavior and demeanor.
JD: I hope you’re having a great vacation. This article is fluff that’s way below the standards of what you usually publish.
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