In the business of financial life planning, I answer a lot of questions. Many centre around money management. It’s no surprise that I spend a lot of my time answering questions and dispensing advice to help people make better choices with their money. While there are so many other areas we address in financial life planning, this seems to be paramount.
Some people have a lot of questions and some people do not and do know what questions they should be asking of me. However, there are three questions I wish clients would ask more often. In fact they should be asked of any financial planner.
While everyone’s circumstances look different, there are some questions that seem to come up over and over again. Even so, there are still questions that I think everyone should be asking a financial planner, but very few people do. So, in an effort to make your planner search less cumbersome or strengthen the relationship with your current advisor, here are three questions you should ask.
What does fiduciary mean?
A fiduciary is someone you hold in high confidence or trust. A professional who works as your fiduciary is legally and ethically responsible for having your back through thick and thin while always placing your interest above all others including their own.
A fiduciary does and suggests what is best for you at all times. You might think that’s the default role for someone you’re paying to give you financial advice but unfortunately, it’s actually on you as the consumer to seek out and verify that your adviser is a fiduciary 100% of the time because not all of them will work for you in this capacity.
Part of the reason people get confused is that this industry has too many terms and words. I’m talking about words like fee-based and fee-only, which are used to describe how advisors get paid. They are not the same thing, despite how similar they sound.
When working with a planner, it is always good to ask them what the word “fiduciary” means to them and their company because the company can have different views from the advisor. It’s also good to look for Certified Financial Planners, because these professionals are bound to a fiduciary standard whereas others in the industry may not be.
What is your business succession plan?
In 2017, the average age of financial advisors in the Canada was 52. Over the next 10 years, roughly 37% of all advisors are expected to retire.
If you’re in your 20s to 40s, you have far more than just 10 years of wealth management to consider. Therefore, you need to clearly understand how your accounts will be managed should your current advisor leave the profession, retire, or even die.
Ask about your advisor’s business continuity plan, including their back-up business locations (for events such as natural disasters and pandemics), back-up data plans (for data loss or breaches), and succession plans that detail who the key contact person will be should your main adviser be unable to serve you.
Even if your advisor has all their business continuity documents and plans in order, choosing a firm that works in teams, rather than just relying on a single advisor can secure your safety even more.
There’s no replacement for years put into a relationship, building trust, and getting to know you as not just a client but as a person. By working with an entire team, you ensure that you build a solid relationship with multiple professionals who understand and care for you.
What am I paying in total fees?
When people ask questions about cost, they usually think in terms of fees a financial planner charges directly to them as a client. But that only scratches the surface of what a real discussion around advisor fees should include.
The average financial planner will charge around 1% or higher to manage your investment portfolio. Knowing this fee is very important, but it’s not the only cost to consider.
Most planners building an investment strategy for you will manage your portfolio utilizing different types of investments. All of them can have underlying costs that you should also factor in to calculate your total cost, especially if you’re trying to compare one advisor pricing.
For most portfolios built using individual stocks, you will need to know the underlying trading cost and how often the portfolio is turned over in a year. With ETFs, mutual and segregated funds, you would want to know the annual expense ratios assessed by each. Knowing how your advisor will manage your portfolio is crucial in your decision making.
Lastly, the cost discussion does not stop here. If your advisor is more commission- or transaction-based, those costs should be adequately compared to that of an ongoing fee-only or fee-based service model. For example, our firm uses different inclusive fee models specifically geared to the need and desire of each client.
By asking your advisor these three questions, you can be sure to get the information you need to make a prudent decision about who can best serve you.
Understanding their answers can solidify the relationship with your current advisor, help you determine if it’s time to move on to someone else, or help differentiate advisors from each other as you shop around for your lifetime financial life partner. Doing your homework and proper due diligence is key to making the right decision and Keeping Life Current.