How To Pick The Right Financial Advisor

Key questions you should ask your financial services provider.

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Reviewed by: Cinthia Murphy
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Edited by: Cinthia Murphy
The Department of Labor recently put forth regulation that aims to hold the retirement investment industry up to fiduciary standards—the same standards that registered investment advisors are required to meet under the Securities and Exchange Commission.

The proposed regulation headed for congressional approval should have little impact on the RIA, and opinions are still mixed on its effectiveness, but when a regulator takes the time to draft legislation in an effort to protect investors, it’s a good opportunity to take pause.

Your Best Interests At Heart

If nothing else, for ETF investors everywhere turning to RIAs, financial planners, ETF strategists, wire houses and the like, the DOL’s move offers a reminder of the importance of knowing your financial professional is acting with your best interests at heart.

Much of the wealth today is not managed under a fiduciary standard, but under a suitability standard of care—where an advisor has no legal obligation to do what’s best for the investor. Many investors don’t know the difference between the two.

It could also be that your financial professional does both, investing part of a portfolio under a fiduciary standard, and part under a suitability standard—like fixed income—where they can generate commissions.

Questions To Ask A Prospective Advisor

So, is your advisor the right one for you? We offer a list of questions—courtesy of the BAM Alliance—you should ask of a potential advisor before deciding if he or she is the right match:

  • What is your fee structure?
  • How are you paid personally? Is it the same, regardless of what we do with our assets?
  • What is your client retention rate for the past four years?
  • Are any of the investment vehicles you recommend proprietary? Do they have any liquidity restrictions?
  • Do you provide a written investment policy statement for all your clients? If so, what is your strategy for rebalancing your clients’ portfolios? How often do you rebalance?
  • Will you show your recommended allocation to me and explain your recommendation?
  • Will you provide a list of funds/managers you were recommending five and 10 years ago?
  • What did you do for your clients in 2008? What did you do from a portfolio management standpoint, and why?
  • What did you do for your clients in 2009? What did you do from a portfolio management standpoint, and why?
  • Will you provide a copy of your personal investment policy statement that shows your asset allocation and positions?
  • Will my entire portfolio be managed under a fiduciary standard of care?

Contact Cinthia Murphy at [email protected].

Cinthia Murphy is head of digital experience, advocating for the user in all that etf.com does. She previously served as managing editor and writer for etf.com, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.