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Many of us think that one of the most important interviews we’ll have is for a great opportunity. Getting that one position at that company you’ve wanted to work for since forever. Or getting a life-changing scholarship. Or an internship so prestigious that people make a movie about it. (Google!). But the most important interview could the the one you have with your Financial Advisor.
Why this interview is so important
This is the most important interview because it concerns the rewards of what every other interview has earned for you. Your money. Yet many Financial Advisors will tell you that people never know what to ask them. And this is quite justified if you think about it. Nobody’s taught us what we should ask the guy who handles our money in order to evaluate if he can handle our money well or not. But it is so important that we learn this. Because not everybody with the title Financial Advisor slapped on their business card actually acts in your interest.
Before we even get to the interview
With every opportunity, there are requirements one has to meet even before being invited for the interview. The same should apply with you and a Financial Advisor. Don’t panic. The requirement is just one. And it has to do with who’s interest they are legally bound to act in favor of. If there’s one thing that you need to take from this article it’s this. Before even considering the interview to evaluate them, ask the Financial Advisor whether they are a fiduciary or not.
According to the Legal Information Institute at the University of Cornell, “A fiduciary duty is the highest standard of care. The person who has a fiduciary duty is called the fiduciary, and the person to whom he owes the duty, is typically referred to as the principal or the beneficiary. By imposing these duties, the law reduces the risk of abuse of a beneficiary by the fiduciary.” In this case, the beneficiary would be you.
A fiduciary has a much higher legal hurdle than an adviser who only has to meet a “suitability” standard. Financial Advisors who do not have this are more likely to be loyal to the firm whose products they are advising you to deposit your money into, rather than if those products will be a good financial fit for you or not.
Once they’ve passed the most important requirement now we can get to the interview. Put your best recruitment hat on and ask these important questions when evaluating a Financial Advisor:
1. How are you paid?
According to Get Rich Slowly, the commissions paid for selling financial products vary widely. So there’s always the temptation to for the Financial Advisor to provide advice that garners a higher payout. This can help you determine whether they have a personal incentive to sell you things or not.
2. What services will you provide?
This is so you can know what you can expect from your Financial Advisor from the onset. Will they just provide investment advice, or will you receive a complete evaluation of your entire financial situation (debt, insurance, estate planning, etc.)?
3. What are the risks?
Get Rich Slowly further adds that any Financial Advisor who doesn’t thoroughly explain the risks involved with the investment strategy they recommend isn’t doing his/her job.
4. What qualifications do you have?
Since you cannot verify the accuracy of their recommendations , it is worthy to pose such a question. Although their certifications will not guarantee competence or ethical behavior, it does however prove the validity of the individual you are dealing with to a certain extent.
5. What types of clients do you specialize in?
Some Financial Advisors have a niche. If you have a specific interest — such as property or equity investments- it would be advisable to get a Financial Advisor that is knowledgeable and well informed in that specific area.
6. What is your investment approach?
Different investors have different investment philosophies. If you have a preference for a specific investment philosophy, based on your tolerance for risk and other factors, then it would be worthy to discuss these with your financial planner to see if they are indeed the right match for you.
It is important to remember that it all comes down to what’s best for you financially. Your Financial Advisor should serve your best interests before anything else. You’ve worked hard. The last thing you’d want is to leave the rewards of your hard work to someone who will squander it all. As Warren Buffet says, “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”