Are you considering working with a financial advisor?

Navigating the world of personal finance can be overwhelming, especially when trying to plan for the future and secure your financial well-being. Whether you are new to investing or simply looking to optimize your current financial strategy, working with a financial advisor can provide valuable insight and guidance. From retirement planning to managing debt, a financial advisor can help you make informed decisions and set realistic goals. But with so many options out there, how do you choose the right advisor for you? In this article, we will discuss the benefits of working with a financial advisor, how to find the best one for your needs, and what to expect from the process. Let's dive into the world of financial planning and take the first step towards a more secure financial future. ‍

10 Questions to ask a financial advisor

Don’t be afraid to ask some tough questions.  If you don’t understand something, ask for clarification.  Treat it like an interview, because that’s exactly what it is.  

"If an advisor is uncomfortable with questions about compensation, intentionally uses jargon, or provides vague dodgy answers when you probe for details, that should tell you all you need to know."

-Daniel Masuda Lehrman, CFP®, CSLP®

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Here are the top 10 questions to ask your financial advisor:

• Are you, without situational exceptions, a fiduciary at all times with all your clients?  
• How do you earn money?
• Do you have a clean regulatory background?
• What education, certifications, and experience do you have?
• What kind of experience do you have with goals like mine?
• How many clients are you currently working?
• What is your typical client size?  
• How often will we meet and how can I contact you?
• What is your financial planning process?
• What is your investment philosophy?

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Are you, without situational exceptions, a fiduciary at all times with all your clients?  

A fiduciary financial advisor is legally and ethically required to act in your best interest and disclose any conflicts of interest.  But most “advisors” (including those that call themselves financial consultants, financial professionals, etc), are NOT fiduciaries.

Some advisors, even those with a CFP designation, will call themselves fiduciaries, but only sometimes.  They can act as salespeople in some cases (not a fiduciary), and an advisor (fiduciary) in other cases.  To sidestep this confusing and completely legal bait-and-switch promise of fiduciary services, it’s better to work with someone who is always a fiduciary–someone who isn’t earning sales or “performance” bonuses behind the scenes.  Work with someone who can transparently tell you that the only person paying them is you.  

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How do you earn money?

If you’re unsure of how your financial advisor earns money or how much they are charging you, you MUST find out.  If they say “there are no fees”, proceed with extreme caution.  There is always a catch.  Different types of advisors, such as fee-only financial advisors or fee-based financial planners, may have varying fee structures that can impact the advice they provide. By working with a fee-only financial advisor, you can avoid potential conflicts of interest that may arise from advisors who charge fees based on the products they recommend, such as mutual funds, annuities, and life insurance.  Advisors who adhere to the fiduciary standard, such as those certified by the National Association of Personal Financial Advisors (NAPFA) or the CFP Board are required to act in your best interest when providing comprehensive financial planning services, including retirement planning and investment management.

Financial advisor compensation models generally fall into one of three categories:

Commission

A commission-based advisor earns sales commissions on financial products they “recommend” (the more accurate word is “sell”)  to you.  There are rarely any initial fees or barriers to entry to speak to a commission-based advisor.  They may even offer “free” financial advice.   But beware, an advisor who only earns sales commissions is not a fiduciary.  

The core issue is a matter of incentives: If your advisor’s livelihood depends on selling a product, chances are they’ll go to great lengths to promote that product heavily.  This doesn’t mean they’re bad people;  a salesperson probably genuinely believes they’re helping their clients.  But to say they are biased or subject to conflicts of interests is an understatement.  

Be careful if what you’re being recommended is an annuity or whole life insurance policy, because these are the products that carry the highest commissions, making them incredibly lucrative to sell.  Commission-based advisors are held to a lower “suitability” standard rather than a "best-interest" standard.  In other words, they are allowed to “advise” you to buy their proprietary insurance product that earns them a 10% commission, even if there are better, lower-cost alternatives out there.  

Fee-based

A fee-based advisor can earn both fees and commissions.  Notably, they can be a fiduciary sometimes and broker (not a fiduciary) at other times. It depends on the situation.  Fee-based and fee-only are not the same thing.  For example, a fee-based advisor can charge advisory fees in addition to earning commissions on selling you a life insurance policy, while a fee-only advisor is ONLY compensated by you, the client.  

Fee-only

A fee-only advisor is paid directly for the services they provide, rather than earning commissions on products sold.  The idea is to simply charge the services offered (advice, planning, investment management) and quote a cost.  This makes things more transparent and eliminates hidden sales incentives and conflicts of interest to sell a certain product or company offering.

Fee-only advisors might charge fees in a variety of ways:

• Monthly, quarterly, or annual retainer fees
• Assets under management fees (AUM)
• Hourly fees
• Project-based

Fee-only advisors can get paid whether you invest your money or not, which makes it more likely you’ll receive unbiased advice.  The fee-only model eliminates many, but not all conflicts of interest.  For example, if a client is paying their advisor 1% to manage their account, what happens if that client asks about the advisability to liquidate that account to pay off their mortgage?  It’s our duty to disclose these types of conflicts of interest when they occur.  

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Do you have a clean regulatory background?

Before you even meet an advisor, you should always verify this yourself.  It takes less than 5 minutes to do.  Run a simple Google search with the advisor’s name and see what you find.  Then, look up the advisor on  BrokerCheck or IARD websites. Proceed with caution if there are any negative marks in their history.  In the meeting, ask the advisor what happened, and decide for yourself if you’re comfortable with their answer.

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What education, certifications, and experience do you have?

As a baseline requirement, look for an advisor that is a Certified Financial Planner (CFP®) professional, a certification considered the “gold standard” for advisors.

Then, ask how long they have been working directly with clients.  What companies have they worked for, and in what capacity?  Even if someone worked at a large, reputable company, that doesn’t mean they’re experienced or skilled at providing financial planning and advice.  Many, many of these jobs are service or brokerage related, which doesn’t prepare one to be a financial planner.  Others may be very knowledgeable on financial planning topics but have little to no experience working directly with clients in an advisory capacity.  Life experience is important in order to be a skilled financial advisor!  As you ask about experience, be sure to drill down into client-facing experience with the topics you need help with.  

Finally, ask if they have any experience that makes them uniquely qualified to help you!  For example, when I meet clients who own rental properties, I always make sure to mention that I also own and manage 2-3 short and long-term rental properties, so I’m intimately familiar with the challenges, opportunities, and risks of being a real estate investor.

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What kind of experience do you have with goals like mine?

You might be considering an advisor who has every designation in the book: CFA, CPA, CSLP, JD, etc.  I’ve met advisors who have more letters behind their name than letters in the alphabet.  Clearly, they’re very smart, but if they’re not familiar and experienced dealing with your circumstances or goals, they may not be the right fit for you.  They might be able to figure it out, but there’s a risk that they’ll miss some important details.  Not only do you want an advisor who is competent enough to help you, you also want one who understands you and is able to connect with you on a deeper level.  

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How many clients are you currently working with?

Any professional who is exceptional at what they do is probably going to be in high demand.  Make sure your advisor will be able to dedicate the time and attention you think you’ll need.  If your prospective advisor has more than 75 clients in their book of business, they will likely be very busy.  If you’ll work with a junior advisor, find out about their background, education, skills, and philosophy.  If you’re comfortable with working with a junior advisor and/or support staff and don’t think you’ll need more than 2-3 meetings annually, the advisor’s book size may not matter to you as much.  

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What is your typical client size?

If you hire an advisor to manage your investments, find out how your accounts compare to other clients.  In many cases, the difference between a large and small client might not be that significant.  But at certain asset levels, your finances can get more complex, and you may want an advisor familiar with the challenges that this complexity can bring.  

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How often will we meet and how can I contact you?

Many advisors are eager to win your business and act during the courtship phase that you are their most important client, only to disappear after you’ve enrolled as a client.  So, find out beforehand what your experience as a client will look like.  At the beginning of the relationship, there may be a lot of contact. But what do you want after that? How often will you meet, and what topics might you discuss during those meetings?  Is it your job to reach out to the advisor, or vice versa?  Are they available during work weeks 9-5PM, or do they have a flexible schedule to accommodate you?  How quickly will they respond to voicemails and emails?  Is scheduling an appointment the best way to get in contact?  Will you ever be asked to dial an 800 number and wait on hold?

Bottom line, consider how much contact you really want with your advisor and make sure you’ll be satisfied with the cadence and mode of communication.  

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What is your financial planning process?

A good advisor will have a well-defined process on leading their clients through financial planning and be able to articulate it to you.  You can follow-up to ask what kind of deliverables you should expect:

• Do you provide holistic financial planning?  What does that mean to you?
• What information do you need from me?
• How long does your financial planning process typically take?
• What will I receive (a one-page summary, a report, action items, etc.)?
• Will you provide investment advice, and will you implement it for me?
• What happens when life events occur and we need to make an update?
• Which topics are included?  (cash flow, taxes, credit cards, estate planning, retirement, education, real estate, 401Ks, insurance, etc.)?

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What is your investment philosophy?

Even if you’re a complete novice with investing, you need to ask the question:  What’s your investment philosophy?  There’s a few different investment philosophies and none are decidedly better than the others.  In general, take caution with advisors that say the following:

1. “I can beat the market”.  You’re either dealing with someone who is overconfident, misguided, or willing to say anything to sign you on as a client.  
2. “Your returns will match or exceed the S&P 500”.  Unless you are 100% invested in stocks, your returns are unlikely to match or exceed the markets.  An unfortunate reality for properly diversified, long-term investors is that you may be invested in sectors or areas that don’t perform well.  Good decisions don’t always lead to good outcomes.  
3. “I believe in guaranteed returns”.  Translation:  I’m most likely a commission-based advisor that only gets paid to sell annuities or other insurance-based products

Other questions you should ask to dig deeper:

• Do they use active or passive investments?
• Do you invest in individual securities?
• Do you use alternative investments?
• How often will they trade in your accounts?
• Where will you hold my cash?
• Do you offer customizations, like socially responsible investments?
• Do you offer your own firm’s investment products primarily, or are you completely independent?
• What custodians do you use?

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Questions to ask your financial advisor:  My Answers

1. Are you, without situational exceptions, a fiduciary at all times with all your clients?  Yes, I am legally and ethically responsible to advise in your best interest at ALL times.
2. How do you earn money? I am a fee-only financial advisor.  The only compensation I receive is directly from my clients.  I charge a retainer fee for planning and an optional investment management fee.  You can read more on my pricing page.
3. Do you have a clean regulatory background? Yes, you can view my regulatory profile on IARD and FINRA
4. What education, certifications, and experience do you have?  I earned a BA in Economics from the University of Michigan.   My certifications include the Certified Financial Planner ™ (CFP) designation since 2016 and the Certified Student Loan Professional (CSLP) designation since 2023.  I’ve worked at the Big 3 (Vanguard, Fidelity, & Schwab) in a financial advisory capacity, so I am particularly knowledgeable about their platforms and offerings, including mutual funds and ETFs.  
5. What kind of experience do you have with goals like mine?  I primarily work with those planning for retirement, needing income in retirement, or managing a substantial inheritance.  I own and manage 3 rental properties, including an Airbnb in Michigan.  My wife has nearly six-figures in graduate school loans, which is why I earned my CSLP designation.  
6. How many clients are you currently working?  I launched my firm in 2024, so I am only working with 3-4 clients as of March 2024
7. What is your typical client size?  Most clients have between $100,000 to several million.  Some clients will have minimal assets but high incomes, and vice versa.
8. How often will we meet and how can I contact you?  From our initial meeting until implementation of your financial plan, we’ll meet at least 3-4 times in the first couple months.  Then, I’ll typically reach out to schedule a review 2-3 times annually, but I’m always available if you need me.  You can text, e-mail, call, or schedule a Zoom appointment.  Unlike other advisors, I can meet you on weekends or evenings to accommodate your schedule.
9. What is your financial planning process? I have a 5-step financial planning process that starts with gaining clarity, getting organized, mapping your future, setting sail, and helping you stay on track.  Watch this video to learn more!
10. What is your investment philosophy? This question can be answered in a couple ways:  First, I believe in goals-based strategic asset allocation, which in a nutshell means that your goals and risk tolerance dictate the ratio of aggressive versus conservative investments in your portfolio.  I believe that low-cost passive investing should be the default for most people.  Studies have shown that active management, whether that’s individual stock pickers or hedge funds, not only charge higher fees but also consistently underperform their benchmarks long-term.  At Masuda Lehrman Wealth, we work with clients who custody assets at Fidelity, Schwab, Vanguard, and Betterment.  We offer investment management exclusively through Betterment.  Through Betterment, we can offer passive investment management, rebalancing, tax efficiency, and alternatives such as socially responsible investing, target income generation, and quantitative factor investing.  

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Finding the right advisor

When you work with me as your financial advisor, you can expect personalized and comprehensive financial guidance tailored to your specific needs and goals. I prioritize building a strong relationship with my clients based on trust, transparency, and open communication.  Whether you are looking to build wealth, plan for retirement, or protect your assets, I am dedicated to helping you navigate the complexities of financial planning and investment management. With my expertise and dedication to your financial success, you can feel confident in making informed decisions and achieving your long-term financial goals. Let's partner together to secure your financial future. ‍

If you’d like to learn more about working with me, let’s talk!

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