In 2011, we came out with our article “Ten Questions to Ask a Financial Advisor” to help people shopping for investment advisors to weed out those who might be bad for their finances. The 10 questions are each in a yes-or-no format where “yes” is the best answer and “no” means you should seek more information or not consider that advisor at all.
Recently, the CFP Board came out with their own version of “Ten Questions to Ask Your Financial Advisor.”
The CFP® certification is the recognized standard of excellence for competent and ethical personal financial planning. The designation requires a higher education degree, at least three years of professional experience in the field, submission to the CFP Board’s Standards of Professional Conduct, passing a 6-hour examination on a comprehensive list of financial topics, and 30 hours of continuing education every two years.
The CFP® certification is the gold-standard designation for those who provide financial planning services, not just investment advice. However, among SEC registered investment advisory firms, the number of firms with CFP professionals on staff may be as low as 6%.
For this reason, utilizing a firm that simply has a CFP on staff increases your odds of at least working with a comprehensive wealth manager. At our firm, we require each Investment Committee member to have, at a minimum, the Certified Financial Planner™ (CFP®) or Chartered Financial Analyst ® (CFA) designation.
The CFP Board’s ten questions are:
1. What experience do you have?
2. What are your qualifications?
3. What financial planning services do you offer?
4. What is your approach to financial planning?
5. What types of clients do you typically work with?
6. Will you be the only financial planner working with me?
7. How will I pay for your financial planning services?
8. How much do you typically charge?
9. Do others stand to gain from the financial advice you give me?
10. Have you ever been publicly disciplined for any unlawful or unethical actions in your career?
The correct answer to some of these questions is unclear. For example, how much experience is enough experience? Should they have other planners working with you?
For other questions, the truth might be easily veiled behind marketing nuances. For example, a commission-based professional might try to claim they don’t charge anything even though they do make money from you.
Although these questions may help some people discern which professional to sign up with, we prefer our ten questions better as they cut to the heart of the matter. They have an obvious correct answer (“Yes”), an obvious incorrect answer (“No”), and any professional who tries to veil their answer behind marketing nuances without giving a clear yes or no can be counted as incorrect. Our ten questions should not be hard for an advisor to answer.
Our ten questions are:
1. Do you use a recognized third-party custodian to hold your clients’ assets?
2. Is there a good chance my investments will lose money?
3. Is the daily price of everything you invest in listed in the Wall Street Journal?
4. Do you avoid hedging or buying options? Does everything you invest in trend upward?
5. Could you teach me to implement your investment strategy and let me do it on my own?
6. After selecting your investment approach, could I change my mind at any time, immediately recoup everything left of my investment and have no financial hooks to keep me from dropping your approach?
7. Do you report a client-specific time-weighted return each quarter?
8. Do you live a frugal lifestyle?
9. Is the fee I pay you the only compensation you receive?
10. Do you sign a fiduciary oath?
That being said, the more you know about an advisor the better. Here are our answers to the CFP Board’s Ten Questions to Ask Your Financial Advisor:
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