Finding a financial planner can be complicated and maybe even overwhelming. We have compiled 4 questions to ask a financial advisor in the first meeting that will hopefully make finding the right financial planner for you a little bit easier. Personal finance is personal, and not every financial planner or advisor will work for everyone. Taking the time to find the right one is really important because this decision can make tens of thousands of dollars over the course of your lifetime.
Finding a financial planner can be complicated and maybe even overwhelming. We have compiled the 8 best questions to ask a potential financial planner that will hopefully make finding the right financial advisor for you a little bit easier. Personal finance is personal; not every financial planner or advisor will work for everyone. Taking the time to find the right one is important because this decision can make tens of thousands of dollars over your lifetime.
Due to the fact that anyone can claim the title advisor, some may claim this title with no certifications at all! Here are some common terms that you may hear:
- Financial Advisor
- Financial Planner
- Financial Consultant
- Wealth Advisor or Wealth Manager
- Investment Advisor or Investment Manager
Now, let’s dive into the 8 questions to ask a potential financial advisor in the first meeting.
- Are you a fiduciary financial advisor 100% of the time?
Do they uphold a fiduciary standard 100% of the time or just adhere to a suitability standard? A suitability standard just means that an advisor has to recommend a product for you that is suitable. They could receive a bigger commission off of one product or another, or, recommend that you move funds from one place to another and it may not be in your best interest.
A fiduciary financial planner is going to be in your corner and help you make decisions that are based on your best interest all the time. They want to help you maximize your money and they are not tied to a specific company. Fiduciary financial advisors have a sworn oath to act in your best interest.
Here are 3 reasons to choose a fiduciary financial advisor. At District Capital, we are fiduciary financial advisors who swore an oath to act in your best interest.
2. How do you get paid?
Financial advisors and planners are paid in three different ways.
- Commission-based financial advisor: The first way that a financial planner can get paid is with a commission. This is when the financial advisor gets paid money for the products they sell you. It may be a one-time commission over the period of the product. Commissions are typically paid directly to the financial advisor from the company. You will never actually get a bill for it but it’s still important to look for and ask about. Unfortunately, because of these fees, the products are often higher priced than a similar product on the market.
Additionally, a commission-based advisor may only have access to the products that are within their company’s offerings. This means that you won’t get the full array of options that are on the market. Again, none of this is inherently bad, it’s just something that you as the consumer need to be aware of and know. - Fee-based financial planner: The second way that a financial advisor can get paid is through a fee-based model. This is a combination of fees, as well as commissions. They may charge you for a service, but then they also receive commissions from the products they sell you. Again, it’s not bad. You just need to know there’s a chance that the products that they recommend to you are because they get paid a commission on them.
- Fee-only financial planner: The third way a financial planner can get paid is through a fee-only model. This is not to be confused with fee-based. This is where you pay money to the financial advisor or the financial planner for them to give you advice and recommendations that are in your best interest. They only get paid through the fee. There are no commissions, kickbacks, or referrals. You will pay that either through a percentage of assets you have under management with them, an hourly fee, project-based, or maybe a retainer model. It is a fee you pay for their services.
Here are 4 reasons to hire a fee-only financial planner. District Capital is a fee-only financial planning firm and we are never paid a commission of any kind. There are no hidden costs and we are very transparent. You can view our pricing here.
3. Are you educated, credentialed, and experienced?
Unlike other professions, there’s not one specific way to become a financial planner. There are over 200 different designations. It’s vital for you to understand how they got that designation, and more importantly, what it means for you and your financial plan. Here are some of the more common ones that you may come across in your search.
- Certified Financial Planner or CFP®: A certified financial planner is an individual who has taken a rigorous curriculum that is approved by the CFP Register Board. They’ve also passed a six-hour exam and have a minimum of 4,000 experience hours before they receive their accreditation.
- Accredited Financial Counselor or AFC®: They have completed coursework that was approved by the AFCPE Board, and they’ve completed a three-hour exam along with 1,000 hours of professional financial counseling experience before they receive their accreditation. Both the CFP and the AFC have to take continuing education credits to keep their accreditation.
- Chartered Financial Analyst or CFA: A globally recognized professional investment designation given out by the CFA Institute. This is considered the gold standard in investing. One has to pass a series of three intense exams to pass.
These are just four examples of the many designations that are out there. It is important to know what those designations mean and if it’s something that’s applicable to your situation. Here at District Capital, we have 2 CERTIFIED FINANCIAL PLANNER™ professionals, one Accredited Financial Counselor®, and one CFA charter holder in our team.
4. Who is your ideal client and do you have clients similar to me?
It’s important to find out what types of clients the financial advisor specializes in. Financial planning is a complex process that requires different strategies based on your life goals or life stage. It’s crucial that they have the right expertise to help you with your specific situation.
For example, if you are a federal employee, make sure that the financial advisor you choose has worked with other federal employees and can give you the best advice. If you are a millennial, make sure that you work with a financial advisor who works with millennials. It’s helpful to find an advisor who has experience working with people in your financial situation and your life stage.
At District Capital, we serve professionals and entrepreneurs in their 30s and 40s who want to elevate their finances. The majority of our clients are based in Washington, DC, Maryland, and Virginia but we enjoy working with clients nationwide. We have put together some hypothetical client stories so you can see if our clients sound like you.
5. What is your investment philosophy?
Investments are an important part of your financial plan. You want to work with a financial advisor who uses sound methods based on solid data. Make sure that your advisor has a clear, evidence-based strategy for investments. They should be able to explain everything to you in simple terms that are easy to understand. Some questions about their investment philosophy may include: How do they select the specific investments in your account? Do they use individual stocks or mutual funds? How often do they rebalance or reallocate your accounts?
6. How often will we meet?
Most financial advisors will have a set amount of times that they meet with their clients per year. Choose a financial planner whose schedule works for you. You don’t want to be left all alone after a big plan presentation but you also don’t want to have an overwhelming amount of meetings to attend. Ask your financial advisor how often they would like to meet per year and see if it suits you.
7. Do you have a clean regulatory background?
In addition to asking this important question, you can also check for yourself. Do a quick web search of the potential financial advisor to see if any articles around criminal charges or fraud come up. You can also view regulatory reports that contain important information, which you can access at the SEC’s website. Financial advisors are required to disclose their firm’s history in their Form ADV.
If you see any negative information in their history then you may want to proceed with caution. Ask the financial advisor questions about what you found and gauge whether it was a serious offense or not.
We have a clean regulatory background. Our Form ADV is listed on our website.
8. Is it a good fit?
Does it feel right? Are you getting a good vibe? Do you feel like you can trust this person? Do you feel like they understand your goals, or are willing to work with you to uncover them? We’re not saying this person has to be your new best friend, but you are going to share a very intimate part of your life. You want to feel comfortable asking questions and sharing concerns.
It’s also important to think about the way that they talk to you. For instance, if you’re looking for someone to help you with some education, do they have a teacher’s heart? You want to have someone that you’re willing to pick up the phone and talk to, and that they’ll meet you where you are with no judgment.
At District Capital, We are very open to talking about whether we are a good fit for you and your family. We will listen deeply and speak with care. We will always meet you where you are.
What are some websites to find the best fee-only fiduciary financial planners?
- XY Planning Network: a newer organization of fee-only financial advisors who generally work with Generation X and Generation Y clients.
- National Association of Personal Financial Advisors (NAPFA): a non-profit association of fee-only financial planners.
- CFP Board: is the entity that administers the CFP® designation. However, not all CFP® professionals are fee-only financial advisors, so ask.
- Fee-Only Network: all of the financial advisors listed here are fee-only and are fiduciaries, meaning that they act in your best interest.
Ask the right questions when meeting with a financial advisor in 2023
When you interview a potential financial advisor, make sure that you ask these tough questions. Hiring a financial advisor will be one of the biggest financial decisions that you will make and you want to make sure that you choose the right person for your unique situation. If you are looking for a financial advisor, feel free to schedule a free discovery call. We look forward to helping you maximize your money and achieve your financial goals.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.
