Referred to a financial advisor? Here’s what you should ask

Investors looking to evaluate potential financial advisors can avail themselves of many lists of sample questions, such as those suggested by the Financial Industry Regulatory Authority, for interviewing practitioners. But just how to interview references, as is frequently suggested, is less clear. What kinds of questions should a reference expect?

“Getting a reference from a friend or peer is a great place to start,” said Scott A. Bishop, certified financial planner and partner with STA Wealth Management. “But many [references] have a great ‘feel’ about the person, but not the qualifications or references.”

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Bishop said the first thing you should check is their credentials. “Find out whether [the advisor is] in sales, via a broker dealer/insurance company, or will they act like a fiduciary, such as many affiliated with RIAs will be,” he said. (RIA is an acronym for registered investment advisor.)

He also suggested asking references about the services they have received in the past, such as investment management, retirement planning, estate planning, tax planning, etc.

For his part, Bruce Colin, CFP and owner of Bruce Colin & Co., offers these questions for references:

  • Has the advisor been very clear about explaining how he or she gets paid? Can the advisor’s client explain it accurately to the prospective client?
  • Does your advisor have discretionary authority, which allows him or her to invest, transfer or otherwise act on your money without prior consent? Or does the advisor seek your approval and understanding before initiating each and every transaction?
  • Is your advisor willing to work with or be a part of a team of other professionals, including attorneys, accountants, etc.?

It’s important to be provided with references whose circumstances and needs are similar to the prospective client, said Neil R. Waxman, CFP and managing director with Capital Advisors. In addition, the references must feel very well served and should delineate why they are satisfied.