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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.
This article is about Choices, Gurus, Hints and Tips, Planning Thursday, 16th April 2009 (by J.D. Roth)
April 16th, 2009 at 5:08 am
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.
April 16th, 2009 at 5:57 am
I would also be interested in talking to other clients.
Thanks,
Nate
April 16th, 2009 at 5:57 am
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.
April 16th, 2009 at 6:06 am
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.
April 16th, 2009 at 6:11 am
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?
April 16th, 2009 at 6:28 am
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.
April 16th, 2009 at 6:33 am
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.
April 16th, 2009 at 6:35 am
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.
April 16th, 2009 at 6:39 am
@#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?
April 16th, 2009 at 6:51 am
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.
April 16th, 2009 at 6:52 am
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.
April 16th, 2009 at 7:00 am
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.
April 16th, 2009 at 7:01 am
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/
April 16th, 2009 at 7:04 am
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.
April 16th, 2009 at 7:07 am
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.
April 16th, 2009 at 7:12 am
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.
April 16th, 2009 at 7:23 am
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?
April 16th, 2009 at 7:26 am
You said it Paul. I’m actually unsubscribing from this site due to this offensive post.
April 16th, 2009 at 7:27 am
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.
April 16th, 2009 at 7:47 am
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.
April 16th, 2009 at 8:13 am
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
April 16th, 2009 at 8:20 am
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…”
April 16th, 2009 at 8:26 am
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.
April 16th, 2009 at 8:27 am
“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”.
April 16th, 2009 at 8:33 am
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.
April 16th, 2009 at 8:38 am
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.
April 16th, 2009 at 8:51 am
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.
April 16th, 2009 at 8:55 am
+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.
April 16th, 2009 at 8:55 am
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”
April 16th, 2009 at 8:57 am
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.
April 16th, 2009 at 9:00 am
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
April 16th, 2009 at 9:03 am
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.”
April 16th, 2009 at 9:10 am
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.
April 16th, 2009 at 9:32 am
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.
April 16th, 2009 at 10:03 am
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.
April 16th, 2009 at 10:15 am
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.
April 16th, 2009 at 10:22 am
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.
April 16th, 2009 at 10:24 am
“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.
April 16th, 2009 at 10:27 am
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
April 16th, 2009 at 10:39 am
@ 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%.
April 16th, 2009 at 10:57 am
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.
April 16th, 2009 at 11:05 am
@ 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.
April 16th, 2009 at 11:21 am
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.
April 16th, 2009 at 11:47 am
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.
April 16th, 2009 at 11:51 am
#40 has the best point of all!
April 16th, 2009 at 11:52 am
@ 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/
April 16th, 2009 at 11:56 am
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)!
April 16th, 2009 at 11:57 am
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.
April 16th, 2009 at 12:10 pm
#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.
April 16th, 2009 at 12:13 pm
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.
April 16th, 2009 at 12:35 pm
The overly-PC he-she switching in the article is really annoying. “He” and the masculine pronouns can and should be used as a generic; “she” and feminine pronouns cannot.
April 16th, 2009 at 12:51 pm
@ KF
Didn’t mean to come across “slick”. To be quite honest, whenever I feel like I offend people, I want to apologize and make amends. Sorry for those that were offended.
Ultimately, my clients stay with me because of they way I communicate with them and service them. After the initial meeting, being a family man/or woman is pretty much irrelevant. If I do a lousy job for them, I’ll be fired in a heart beat even if I am a “family man”.
Like you said, it’s all comes down to how they perform for you and keeping the lines of communication open.
If I was working with a planner that was going through a divorce, it would make me cautious but I wouldn’t leave them or judge them because of it. Same would go for a female planner that was going on maternity leave. In then end it would be how they service me, period.
I think the point that I was trying to illustrate (and apparently failed miserably) is that you should take time find out more about the person you are going to hire.
April 16th, 2009 at 12:52 pm
@Dylan –
3. Could you ever stand to profit if I follow the advice you give me? (The answer should be no)
Why is this a problem? This sort of contradiction exists in many other common business relationships (sales of many kinds, stockbroking, real estate, life insurance, etc), and to some extents is the basis of compensation for many people who work in the financial industry — you pay them for their advice, and they take a cut of the success.
A better way of asking the question might be
“If you will benefit financially from giving me advice or recommending a product or service, how is that disclosed?”
and a follow-on might be
“If I choose you as my financial planner, am I limited to buy only products and services from your firm?”
You can’t penalize someone for trying to make a living off a commission if that’s part of the way things operate, and if they fully disclose that they DO have an interest in a particular product or service that is linked to their compensation.
April 16th, 2009 at 12:57 pm
Great post, in my opinion. I often get asked what would normally be personal questions by my clients. (Are you married? Do you have kids? How old are you?) It comes with being in a personal service profession, and I am not offended by it in the least.
Personally, I don’t care that much about my FA’s personal life, unless it flows over into their work. This can happen whether their married, divorced or single.
More significant to me is “What happens if I can’t reach you?” or “Do you work with another FA to cover when you are out of the office?” Because anyone can have something happen that impacts their work. I want someone responsible enough to have some sort of plan if they are away.
April 16th, 2009 at 1:00 pm
Also, what it the person is gay and therefore not even able to get married in most states? And how should they handle that question?
Back where I come from, “family man” is code for “not gay”. While most people probably don’t think that consciously when they say it, it’s something to think about.
April 16th, 2009 at 1:11 pm
Thanks, everyone, for your feedback — positive and negative. I’m in meetings all day, but I do appreciate your responses. And so does Jeff.
April 16th, 2009 at 1:45 pm
@ Jason,
It’s a problem because it is a conflict of interest that is not necessary in financial planning. No one is being penalized for trying to make a living. Financial planners should still be fairly compensated for their advice, but consumers should avoid situations where that compensation can be influenced by the advice itself.
The other business relationships you gave as examples do not have a fiduciary responsibility to their clients; they are not required (or expected) to place the client’s interest in front of their own. Financial planning should be a fiduciary relationship at all times. Other fiduciaries, such as attorneys and trustees cannot advise/act in a self-serving manner.
There are plenty of financial planners who won’t stand to profit if clients follow the advice they give. They are paid an agreed fee for the advice, regardless of what the advice is. If, as a consumer of advice, you have a choice, why not opt for a financial planner that does not have that conflict of interest hanging over their head?
Commissions are compensation for facilitating a transaction, not for advice. Commissions are paid per an agreement between the product distributor and the salesperson with zero regard to whether advice was given to the customer.
Disclosing conflicts of interest is a good thing, but avoiding ones that are not necessary is even better.
April 16th, 2009 at 1:50 pm
Dylan, that’s an excellent point. I will point out that it is difficult for middle market clients to access unbiased advice, except for places like the Garrett Planning Network.
@ Jeff Rose, do you accept fiduciary responsibility with your clients? For all of them? Or is it a hat that you put on and take off?
April 16th, 2009 at 2:14 pm
@#10 UnderstatementJones
you said: “Mostly it’s to prevent people from ducking maternity leave by not hiring people who might get pregnant.”
As if one needs to be married to “possibly get pregnant” nowadays.
April 16th, 2009 at 2:14 pm
Jeff, I liked your response to my comment because it offered a completely different perspective. I’m painting in very broad strokes here, but it seems like men are making more of an effort to be “family men” while women are getting out of their traditional family roles to be “career women.” We have to attend to different parts of our lives to feel complete.
I don’t have an FA yet, so I’m enjoying this debate in the comments
April 16th, 2009 at 2:36 pm
The concern I have with the article is that it leaves out some of the very important professional questions a client should be asking–specifically around fiduciary responsibility, compensation and credentials. I believe that all financial professionals (independent of what they call themselves) should maintain a fiduciary oath, similar to doctors, that requires they act in good faith and put the interests of the client first. A potential client should also understand how the planner will be compensated. I am a fee-only planner myself, but I don’t think it is call out all those compensated otherwise as unfit planners. So long as compensation is clearly disclosed and understood, I think a client can judge for themselves whether the compensation is appropriate. Credentials are important because as Chris says in #49 it is easy, perhaps too easy, to call yourself a “financial advisor”. There are scattered regulations (federal and/or state) depending on how you do business and what you sell. I think the one clear professional designation in the industry is the Certified Financial Planner® designation (it might also be important to note that the author Jeff Rose, is a CFP® designee). You can find out about the qualifications and disciplinary history of any CFP® from the CFP Board of Standards at:
http://www.cfp.net/search/
Although there have been a number of articles in magazines and newspapers about how to select a planner, I think one of the best questionnaires is the “Financial Advisor Diagnostic” by National Association of Personal Financial Advisors (NAPFA). I think there is some bias in the questionnaire towards fee-only planners, but I think the questions are a fantastic starting point for an introductory meeting with your new financial planner. You can find the diagnostic questionnaire at:
http://www.napfa.org/tips_tools/
-Ben
April 16th, 2009 at 2:39 pm
I kind of get the idea of asking what kind of car they drive. But I think its reading too much into things and making sterotype judgements.
Asking about marital status seems useless to me. Marital status is not permanent and there are all sorts of reasons someone would or would not be married. Theres no relationship whatsoever between their family status and their work ethic, financial knowledge, math skills, morals / ethics, ability to identify with someone else, logic, risk assessment, planning skills or ability to provide good customer service.
If you ask if they are married and they are or are not then what do you think this means? It means nothing other than the fact that they are currently married or single.
April 16th, 2009 at 3:55 pm
Interesting post. I’ve been on the fence whether to pursue a new career as a financial planner, and given that you must work as a commission-based seller for three years before you can take the CFP designation exams, I’m not sure that’s for me.
I do think I’d be good at it, though, having been broke, bankrupt, in massive debt, and now completely debt-free with a healthy IRA balance (still; didn’t lose a dime in the crash). But the licensing and certification nonsense is a big dissuader.
Some of these questions are inappropriate, but some aren’t. I’d gladly tell potential clients about my own financial history, and that I drive an older paid-for car and why, but my home life is irrelevant.
April 16th, 2009 at 4:06 pm
@Chris (#40):
“Fact of the matter is financial planning/advising, whatever you want to call it is a service, no different than any other.”
It’s probably pretty easy to say that if you’ve got a small portfolio, but what if you have $1 million in investment assets? Say they’re in mutual funds with MERs of around 2.5% (normal up here in Canada). That means every year, the mutual fund is skimming off $25,000.
$25,000! EVERY YEAR! And for what? Say my advisor set up my portfolio for me years ago. Should he get to keep reaping $25,000 from me, year-after-year, even though he hasn’t done anything for me in years?
No thanks. I’ll keep that $25,000/year for myself, and just stick with the index funds. You know, the ones that 95% of all fund managers FAIL to beat anyway (and the other 5% are impossible to pick out until AFTER they’ve had their lucky streak).
If you’re willing to pay some suit $25,000/year for the illusion of “managing your money,” give me a call. Heck, I’ll do it for half price. The secret is out: they don’t *do* anything. They’re just salesman. They’re “helping” all right - helping themselves to your hard-earned money.
I repeat: keep other peoples’ hands out of your cookie jar. Nobody cares more about your wealth than YOU. If you have a good year, they’ll slap you on the back with a big “attaboy,” but if they have a bad year, what will they say? “Jeez you know, it was a rough year, the markets were terrible and nobody escaped unhurt. By the way, I’m still going to need that 2.5%.” Pffft! I don’t think so.
April 16th, 2009 at 4:34 pm
This is a good article. If one must use a Financial Advisor then he or she really needs to interview and make sure the person is both honest and smart when it comes to finances. Personally, I’m a big fan of do it yourself investing. Whether you have $10 million or $10,000 no one is going to care about your money as much as you do.
-Gen Y Investor
April 16th, 2009 at 4:39 pm
I don’t know if we would ask exactly these questions, but I wish we’d asked more questions of our current financial advisor. He was great with brokering and structuring our last mortgage, but he’s been awful with the new one in the last six weeks - very whiny about how haaaaard it is to get finance right now, even passive aggressive. Well, this morning I opened the local paper to find an announcement that he’s sold the business. No wonder he was only marginally interested - he isn’t going to get the rolling commissions.
April 16th, 2009 at 5:23 pm
@Kevin #63
Man it’s not that I disagree with your premise that someone’s better off doing the homework to become competent themselves, it’s just that you seem to narrowly filter things through your own views.
Fact is, people behave irrationally in some arenas of life. I’ve done it, I’ll admit it. And I’m paying for it right now.
If there had been a professional service I could have hired to prevent myself from doing absolutely stupid things, IT WOULD HAVE BEEN WORTH IT FOR ME.
If it’s a choice of paying $25,000 to keep your money intact, or losing it to your own ineptitude, which alternative is better? Because the fact is, not everyone is going to do what they’re “supposed” to.
That’s the real world. If you’re talented and smart enough you couldn’t possibly make mistakes or do something dumb, or smart enough you don’t see why it’s hard, good for you man count your blessings.
(For the record I don’t think I need a planner either. But I won’t disparage people who think they do.)
Also, maybe consider there could be planners who believe in the index fund strategy and just charge people for asset allocation, estate planning and/or tax advice? Just a thought. There’s a lot more to financial planning than just investing after all. There are lots of technical financial skills that one just can’t learn without special training, and professional assurance in such areas does have value. If that wasn’t true all these corporations wouldn’t have controllers, accountants, etc.
April 16th, 2009 at 5:39 pm
I would NEVER ask someone if they were married! Dang, that’s some nerve! Plus, it assumes the person is straight, which is SO last millennium.
April 16th, 2009 at 5:57 pm
All this “no one cares about your money more than you do” is silly. That’s a given and it’s also missing the point.
No one cares about my car more than I do, but I’m not about to replace the transmission on it myself. No one cares about my house more than I do, but I’m not going to replace my own roof. No one cares about my health as much as I do, but I’m not going to grow my own food.
There are lots of things I care about but don’t have the time, knowledge, tools, or perhaps most importantly, desire to do myself. If everyone did everything themselves, everyone would be self-sufficient and no one would have a job. (And you wouldn’t have time for a job since your whole day would be taken up with your own needs.)
Think about it, everything you do at work is because someone else doesn’t want to do it themselves. Are they stupid for not doing it themselves?
Plenty of people don’t have the desire to manage their own money and there’s nothing wrong with that. In fact it’s better that they recognize that fact and have someone else do it, as opposed to just ignoring the issue and doing nothing.
You are also forgetting that some financial advisers have access to investments that regular investors don’t. So if an adviser takes 1%, but can help me earn 4% more than I could on my own, I’d call that a more than fair trade.
April 16th, 2009 at 6:10 pm
@ David,
“given that you must work as a commission-based seller for three years before you can take the CFP designation exams, I’m not sure that’s for me.”
There is no such requirement for the CFP designation. You can read an overview of what’s required at http://www.cfp.net/become/Steps.asp
I think you may be confusing the requirement for three years of qualifying full-time work experience. You can gain that experience working in a no commission, fee-only firm too.
You can also complete the coursework and take the Board’s exam before you meet the experience requirement. You may be subject to pre-certification continuing education requirement if you pass the exam more than a year before actually becoming certified.
@ Peter,
“You are also forgetting that some financial advisers have access to investments that regular investors don’t. So if an adviser takes 1%, but can help me earn 4% more than I could on my own, I’d call that a more than fair trade.”
This is a bit of a myth. Yes, there may be investments that can’t be purchased directly, but they are not going to net you a 3% advantage; chances are they won’t net you any advantage and there is likely to be a roughly equivalent alternative that is available and can be purchased directly, at a lower cost.
April 16th, 2009 at 6:10 pm
Too many vapid questions, including the ones on marriage and choice of auto. You might as well throw a few in on sexual orientation, place of worship, and thoughts on abortion, just to make sure you’ve got enough irrelevant information to make an unprofessional hiring decision.
April 16th, 2009 at 6:27 pm
@Snowballer (#67)
I apologize, I’m blurring the lines between financial advisors and financial planners.
I have nothing at all against financial planners. These the the people who charge a one-time fee to sit down with you for a few hours, go over your finances and investments with you, help you determine an asset allocation, and teach you which funds/ETFs/fixed-income instruments/precious metals/whatever you should invest in. Then you write them a cheque, they leave, and that’s the end of their compensation. I have no problem with that.
My problem is with financial ADVISORS. These are the folks who take a few night classes and buy a nice suit and think that makes them finance experts. They make their money off commissions. They come to your house and meet with you for free. They work in a constant conflict of interest (that is, they make the most profit by selling you the funds with the highest fees, not necessarily the ones that are the best match for your investing strategy). And they never fail to take a shot at selling you some insurance before you can usher them out the door, either. How’s your life insurance coverage? I noticed you have kids, do you and your wife have enough disability coverage? How about long-term care insurance? No? Maybe some critical illness insurance? Blech, it makes me sick.
Just look at the way the whole mutual fund industry works. Up here in Canada, they’re all insurance companies first, mutual fund companies second. Sun Life, Clarica, Allstate, they all sell insurance and mutual funds.
Follow the money and ask yourself, “How come no matter how the market does, these guys still get paid their 2.5%, like clockwork? Do they make more money by generating value for me, or by churning funds and charging me fees? Why am I the one putting up all the risk, but THEY get paid no matter what?”
The actively-managed mutual fund industry is an anachronistic drain on workers’ wealth. Their outdated business model has cost investors billions upon billions of dollars in “loads,” “commissions,” and “fees.” They’ve mastered the art of shuffling money around and churning funds to both maximize brokerage commissions and make it look like they’re adding value, but as John Bogle revealed in “The Little Book of Common Sense Investing,” it’s all a sham.
Overall, when fees and taxes are factored in, they CANNOT beat the market. It’s simple math - they’re competing against themselves. There’s no magic, invisible investors out there that the mutual funds are dealing with, they’re all just selling to each other. When one fund manager decides he should sell some stock, somewhere out there another fund manager is buying that same stock from him. They can’t both be right, but they’re BOTH charging their clients a fee for it.
April 16th, 2009 at 6:34 pm
I dont care if a person is married or not. The least of my worries when it comes to finding a person, who I am going to pay, to help save money…
April 16th, 2009 at 7:51 pm
Wow that ‘are you married’ question has stirred up some irate comments, and some people even unsubscribing because of it (really? or are you just trying to upset JD?).
My 2 cents - the question as it stands is rude and assumes far too much about sexuality, as well as being descriminatory.
But - It is worthwhile knowing your FA as a person. You will be spending a fair amount of time with them. So how about ‘tell me a bit about yourself’? It leaves it open to the person to tell you what THEY are comfortable with, and also allows you to lead on with other questions without feeling quite so intrusive.
April 16th, 2009 at 8:06 pm
There are a lot of personal questions that, while I see your point, I don’t care to know. As long as my planner is focused on me, then I’m happy. Having worked in finance for several years, I’m pretty good at wading through the BS, so I’m not at all uncomfortable asking direct questions. But, what they drive and if they’re married with problems is a little much. Unless it’s specific to portfolio, I’m not asking it.
One thing you didn’t mention, and I’m somewhat surprised about, is licensing. One of the first things I want to know is how long they’ve been doing this, what their licensing is..6, 63, 7, or any other related licenses, when was the last time they took continuing ed - I’d like to know that they’re up on all the latest information, and what their price breaks are. Still, good thoughts here! Thanks for sharing!
April 16th, 2009 at 8:40 pm
Ah, the life of a blogger. I post a controversial guest post, and then I’m away from my computer all day and so unable to respond.
First, I want to say that I don’t see anything offensive about the content of Jeff’s post, so the reaction from Amy (#18) puzzles me. I regret that I’ve caused somebody woe by sharing this, but I’m still puzzled by what there is to offend.
That said, I do agree that a couple of these are questions I would never ask. The marriage question, in particular, assumes a lot on the part of the asker. If I had written this article, I wouldn’t have included that article. But I think that it’s clear what Jeff is trying to get at here. Even if you don’t like some of the specific questions that he’s suggested, you can see how it might be possible to draft some of your own along the same lines. Right?
I hope that on the whole this post was useful. This is a topic I’ve been thinking about lately, and this post will be something I refer to when it’s time for me to find a financial planner of my own.
April 16th, 2009 at 11:29 pm
At the beginning I dont think “Have you married?” was a good question either, NOT our business.
But, in the other hand, comparing on a “single” and a “married”, the way they plan for financial will ABSOLUTELY DIFFERENT.
When we know the person has married, we will be more sure that she might be arrange her own financial WISER than she was a single.
If I want to ask this “Married” question one day, maybe I will do it not at the beginning of my conversation, but.. after I have a relax chatting about family and children. Then the question will be better to come.
For my own questions if one day I need one probably will be :
1. How long have you worked in this field (experience)?
2. Can you show me your portfolio?
3. How many clients you handle at this moment?
4. How much you charge ?
5. After I describe, What is your financial plan that works for me?
After u chat about your family or children spending, you can come to this question :
6. How about your children, how you handle them? if she tells that she is single, then “Oops.. I thought..”
“What do you drive?”, I will not ask this question at all.
But, let’s see on the positive side.
We need a financial planner to help us arrange our financial, and our final is to be financial freedom.
A financial planner should know what financial position she is and what style of life suit for her RIGHT NOW include car lifestyle.
then we can know whether she really plan good on her life.
And have credibility to plan for us.
This question no need to be asked, but need to take a look.
Cheers,
April 17th, 2009 at 4:22 am
Here is the ONE and ONLY question to ask:
Which of the following licenses do you hold: Insurance Agent, General Securities Representative, Investment Advisor (or IA Representative)?
Run away, as fast as possible, from anyone who holds the first two. FYI: All the other titles like “wealth advisor” or “financial advisor” are meaningless because they’re just made up. It’s pure marketing.
Jeff Rose is both an insurance agent and a general securities representative. See his U-4 with FINRA (LPL Securities) and his Illinois Insurance license (Illinois Insurance Producer). This means he makes money when you buy the stuff he recommends. Not a comment on his ability or integrity just a FACT.
This whole “Advisor(y)” thing is one giant myth. It is a scheme sold to mom and pop. If you happen to be wealthy ($20+ Million) then perhaps you’ll have access to real financial talent through a family office practice. Otherwise, you’ll sooner or later take a bath through excess fees and expenses, perilous over extension of risk, and frankly outright dishonest financial reporting (mutual funds legally lie everyday). How many so called “advisors” put their clients into high interest life products, tech stocks, commodities, and real estate (to name a few), just to watch those bubbles burst and their clients lose hard earned assets?
April 17th, 2009 at 6:33 am
@J Chu: Perhaps you could give us an example or two of how a single financial planner makes different decisions than a married financial planner? And by “single” do you mean people who haven’t yet married or does that label include people who are divorced or widowed? (I don’t mean this to sound like an attack — you made a claim, I’m asking for proof).
I’m sorry, but I think it’s a fallacy that only married people can really understand other married people. Trust me, marriage isn’t some secret club where members have some special insider knowledge. You don’t have to be married to know what family life is all about, or have family obligations of your own.
If anything, we single people have to be just as careful, if not MORE careful, planning our financial futures because we don’t have a spouse’s income as back-up. We’re not living a luxurious, carefree lifestyle. We’re diligently saving for homes we’ll have to afford on our own and in case you haven’t noticed, being single doesn’t stop a person from being a parent.
Besides, most married women I know are looking out for their financial futures as individuals, not just as part of a family unit. The days of the man being the bread winner are over, with high divorce rates and rising disease rates we have to prepare for emergencies.
Of course, sometimes it can be helpful to have someone with a fresh perspective. I don’t know about anyone else, but my friends, coworkers and people with whom I do business don’t have lifestyles identical to mine. I like that.
I agree that we have to be comfortable with the person who is doing our financial planning, but I think we need to watch our own prejudices when we’re making judgements.
April 17th, 2009 at 6:40 am
Bernie Madoff had a wife and kids. I’m willing to bet a lot of the execs at Enron did too.
Just saying
April 17th, 2009 at 6:48 am
Just a quick note of correction. The article suggested researching the advisor at FINRA. That only applies to the brokerage side of the business. If you want to research a Registered Investment Adviser you need to go to http://www.sec.gov. That would apply to the fee only side of the business.
April 17th, 2009 at 10:19 am
One of the comments referenced a Wall Street Journal article on this topic. Roger at “The Passionate Planner” blog http://www.keyfeeonly.com/2009/04/14/questions-to-ask-when-picking-a-financial-adviser/ provides a well-written critique and some useful suggestions.
April 17th, 2009 at 11:39 am
This discussion has really made me think of an Onion story:
“Stereotypes Are A Real Time-Saver”
http://www.theonion.com/content/node/33210
Since Jeff seems to know that married people with sensible automobiles are better financial planners than “single” {unmarried, divorced, widowed, gay} people or people who drive cars we don’t like, stereotypes do indeed save us a lot of time in hiring a financial planner.
and @J Chu, I know just as many married couples who have horrible money management as single people who have excellent money management.
April 17th, 2009 at 3:59 pm
I’m going to college next year to study finance and hopefully become a financial planner in the future, so this post is really insightful to me.
April 18th, 2009 at 4:02 am
Ask him or her “Why would I be better off doing this for myself, rather than hiring a financial planner”.
If you get a straight and comprehensive and almost convincing answer, it might be worth the hire…
April 18th, 2009 at 6:20 am
@Beth & @Jason,
Sorry, I just have time to reply.
My point of view came from my own and friends experiences.
I make it clear, the “single” I meant was haven’t married one.
The one doesn’t have the experience of marriage.
When I was a single, I worked, saved money,and started planning my future as well. But because I just needed to spend for my needs and some for parents’, with my quite good revenue at that time, I didnt worry too much.
And too easy to spend the money for unnecessary things like branded stuffs, dinner outside, shopping around with friends.
But, since I have married, I don’t just HAVE TO think about my own plan, but my children future. I start to plan for their college fee at their earlier age.
So, everytime I shop around, need to THINK TWICE whether this stuff need to buy or not.
And again, when I met other girl friends who have married, they did the same. LIVE FRUGAL THAN BEFORE.
Ok, I know not all people have a good financial planning after marriage.
For me, it’s terrible, they need help because they have kids.
What I mean absolutely different between single and married is not individually but experience.
Experience sometimes makes us need to think twice.
Cheers… Have a nice weekend
April 18th, 2009 at 8:08 am
@J. Chu
“But, since I have married, I don’t just HAVE TO think about my own plan, but my children future.”
Ummm… wouldn’t the question then be “Do you have kids?” not “Are you married?”
40% of children are born out of wedlock for whatever reason. A good many of those parents are or will be single parents and if ever there was a group that has to plan every penny it’s the single moms out there. (Dads, too, but the moms are generally paid a lot less.)
In addition, it rubs me the wrong way when people just assume that married couples have to plan for children like that’s always the next step. My husband and I have no plans for children beyond the four-legged or winged variety.
April 18th, 2009 at 8:45 am
@Meg from FruWiki :
You are right..
“Are you married?” and “Do you have kids?” are different.
Thanks for the correction…
(My opinion)
We are in a colour of living. People have their own way to live. There is no true or false, just the different way.
So, we just need to respect their privacy and decision.
As individual, we need to learn and apply what is the best way for living, future, and the people we loved.
April 18th, 2009 at 8:51 am
@J. Chu: I can see your point… sort of. There’s a danger to basing things only on personal experience. If you and your single friends had good income and weren’t frugal, that doesn’t mean that all single people are like that. My single friends are more careful with their money than some of my married friends because they only have one income, not two, contributing to the household. They’re also trying to build up their savings and retirement funds now so they can afford to take a hit when the kids do come.
Some people need marriage and kids as a wake-up call to prompt them to better manage their money. Some of us don’t. (Some of us don’t need a wake-up call at all if we were raised right). For that reason, I wouldn’t discriminate against someone who was single or married.
As an aside, I find these questions kind of funny. I know enough people that use FPs that I could ask for a recommendation and start there. I can find out a lot of what I need to know before I even set foot in their office.
April 18th, 2009 at 1:20 pm
Of course you all accept the premise that a “financial advisor” can provide value. This is exactly what they want you to believe. All the so-called advisory firms churn out literally thousands of new “advisors” every year, who know practically nothing beyond passing a simple licensing exam. OK, so go with the person with 5-10 years of experience you say. The folks who last that long are brilliant at SALES, not managing money or financial planning. AT MINIMUM avoid any “advisor” who has a securities or insurance license. Married or not? Kids or not? Irrelevant. It’s just the distraction they need to separate you from your hard earned savings.
April 20th, 2009 at 6:53 am
Asking to see what the planner owns is a powerful bit of advice . . . ever hear of putting your money where your mouth is?
April 20th, 2009 at 2:19 pm
My firm matches people to financial planners and we’ve got some additional advice at:
http://www.claroconnect.com/Financial_Library/work_with_financial_professional.htm
which helps you think about what you are looking for and define your financial goals before choosing a planner as well.
April 22nd, 2009 at 7:00 am
Jeff & Brenda: The other side of the coin is that the planner is driving that ratty pick up may be doing so because he’s not very good at making money. OTOH, the one driving the Hummer might be a Bernie Madoff!
I would find it better to discuss their business and investing philosophy, check their background as much as you can. And if their portfolio showings look too good to be true–RUN.
April 22nd, 2009 at 8:30 am
My father is a financial planner. He has a small and successful business managing around 200 million for his clients. He believes in providing the best customer service to his clients, including answering any questions they may have. None of the questions listed in this post are off limits nor should be considered offensive. If the planner does not want to answer then you don’t have to use them. Bottom line, find someone you feel comfortable with and trust.
April 22nd, 2009 at 9:40 am
I went to a financial planner about two years ago and I didn’t find it that helpful. Granted I’m in my 20s, and was already doing the right thing: saving and putting my money into a life-cycle fund. I had no debt other than student loans, so there really wasn’t anything she could have told me that I didn’t know myself. I would recommend a FP for folks with more complicated life / financial situations. But if you’re debt free and have no dependents or major life events coming, you’re better off learning about investing / saving online.
April 22nd, 2009 at 3:00 pm
For the FINRA U-4, the information which a registered representative (broker) is required to disclose is woefully inadequate. Quite often for a variety of strategic reasons Claimants attorneys will sue only the brokerage firm for the broker’s wrong doing. In these situations the registered representative is NOT required to disclose this information. FINRA proposed a rule change to require such disclosures and 1,000+ brokers said it was a “bad” idea. The SEC website has all of the comments at:
http://www.sec.gov/comments/sr-finra-2009-008/finra2009008.shtml
Most brokers now are trained only to be salesmen selling proprietary products or those which carry large commissions (e.g. variable annuities). The days of receiving quality financial advice are over. If you plan on investing, learn to do it yourself and do not buy and product you could not explain to your grandmother.
April 26th, 2009 at 12:15 pm
Great ideas from the article and comments. You may also ask the advisor how much money they have themselves. I worked for a planning firm where the owner had zero in savings beyond the $2,000 in his checking. And he was in his 50s. Why take advice from someone who doesn’t have any savings.
This isn’t to say you should only work with wealthy planners. That isn’t a sign of good advice, but if you are working with someone who is going to help you save and invest, they should be able to speak from experience.
April 26th, 2009 at 4:29 pm
Really, ask how much money they have? Do you ask your doctor about their diet? If they smoke? Do you ask your lawyer about their legal documents? How about asking your banker what their account balances are?
This is all rather ridiculous. A young planner may not have as much saved as an older planner, but it doesn’t make their skills any less useful to you. How about a planner who has a healthy account balance, but through an inheritance. Wouldn’t it be more useful to ask how they acquired their money rather than if they have any?
April 27th, 2009 at 2:57 pm
For the nay-sayers. I am a financial advisor/planner and I CAN beat your “do-it-yourself” portfolio significantly WITH index funds and individual securities. Take away your expenses argument and it’s your experience, continuing education and research tools vs. mine. What do you do all day because if it’s investment research then I’d guess your boss wouldn’t be very happy.
It’s a service and it is important to interview before hiring. Unfortunately, it sounds like many have been burned by crooked salesman. Don’t throw the baby out with the bath water. Just do your homework.
PS: How has indexing done for you this past decade? How long do you think it’ll take to regain your losses?
PPS: I do have access to products and private placements that the average consumer does NOT have access to that can add significantly to a portfolio’s rate of return.
April 27th, 2009 at 8:55 pm
Jay,
How do I nicely say..hmmm… you’re full of it. You sing the siren’s song of “sexy” private deals that are not available to “regular” people, unless they know a sharp “advisor” like you. Of course these products are the secret to your brilliant asset management and are completely liquid and transparent. I doubt it. Far too many smart folks following this blog. They won’t fall for your puffery. Keep moving along. Maybe you’ve got a dinner seminar to attend where you can pitch retirees some index annuities. Private Placements my A**. LOL