Every financial planner goes through that first meeting with a potential client. The questions and answers are mostly repetitive, so much so that an advisor could easily find his answers have become stale without realizing it.
Here AdvisorOne offers what we think of as a refresher course by way of a look at the key questions all investors want answered. Several groups including the SEC, NAPFA and some advisory firms have advice for investors. AdvisorOne has looked over the questions that they suggest investors ask prospective advisors and picked nine of the most likely and key possibilities. To quote the Boy Scout motto: Always Be Prepared.
1. Have you ever been cited by a professional or regulatory governing body for disciplinary reasons?
This might seem like a softball (especially if the answer is no), but if you have been unfortunate enough to be cited, it’s best to be honest. That doesn’t mean an extended mea culpa, just a stick to the facts without getting into any gory details. And explain how you have tightened business controls to avoid any future problems.
2. Does any member of your firm act as a general partner, participate in, or receive compensation from investments you may recommend to me?
Conflicts of interest can be a thorny subject. Whether it’s an executive as mentioned in this question, or whether you receive personal referral fees from attorneys, accountants and others, or you are compensated with trailing fees from mutual funds, sharp investors will want to know.
3. Describe your typical client. Can you provide me with some names and telephone numbers of your long-term clients?
It’s important to be prepared to answer this question. You will need to check with a couple of existing clients beforehand to make sure they are willing to sing your praises.
4. What educational degrees and professional certifications do you hold?
The answer to this question is easy to provide, but it’s important to provide written proof of your background in these areas. Anyone can say they have earned certifications, but written proof, such as copies of diplomas and certificates, validates the claim.
5. Are you a registered advisor?
For many investors this might be the most important thing to find out. If the answer is yes, they’ll know you have a fiduciary duty to them and will be able to have some peace of mind about whom you really work for.
6. Where will my assets be kept?
Since the Bernie Madoff scam, savvy investors are more likely to ask this question. Brokers who maintain custody of investors’ assets are putting those funds at risk. Clients never want to write checks made out to a broker.
7. How many more years do you plan on being a financial advisor?
Clients want an advisor for the long haul. When people choose a doctor they often want one that will be around for years, someone who will get to them as individuals and see them through the problems that lie ahead. The same holds true for financial advisors. No one wants to find an advisor they can work with only to have him or her leave the business.
8. How will you help me meet my financial goals?
After discovering the investors’ goals, investors will want to hear your method for meeting them. And they won’t want some boilerplate answer. They’ll want to be addressed as individuals. That means listening closely to their desires and laying out your strategy in clear, concise and honest terms.
The first eight questions on our list are all standard, but the savvy investor will want to know the reasons an advisor makes the choices he does. J. Gibson Watson III of Evestnest explored this important question in a blog post on AdvisorOne. Letting a prospective client know the motivation behind your decisions before she even asks would be reassuring.
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