Financial Education

Questions to Ask When Choosing Your Financial Advisor

By Eric George, Executive Director, Stockman Wealth Management

We all have a need to build our wealth. By this, we mean saving for retirement, college, and investments. At Stockman Wealth Management, our group is here to help you achieve your personal financial goals and objectives.

Choosing a Financial Advisor

Choosing a financial advisor is not all that different from choosing a doctor. We seek out doctors to guide our healthcare decisions and we trust that they use their expertise in our best interests. Specifically, we expect that the treatments they prescribe are the best solutions to our individual ailments.

Finally, we expect that these doctors are not paid by the creators of those treatments (usually drug companies) to prescribe one treatment over the other and not to prescribe any unnecessary treatments.  Of course, we are willing to pay a fee for this trusted service as healthcare is a critical aspect of life. When the decisions are critical enough, we may seek a second opinion because not all doctors are the same.

In the end, healthcare typically works because physicians have a fiduciary duty to their patients. This duty is defined as a legal obligation for one party to act in the best interests of another. Financial advisory services are similar to the medical model.  You seek an advisor to diagnose and treat your individual financial situation.  You also trust that advisor to place your best interests ahead of his or her own.

This analogy breaks down because unlike physicians, not all financial advisors are required to act in a fiduciary capacity. Additionally, financial advisors may have different certifications, forms of compensation, and widely varying philosophies. Unfortunately, you can’t expect a full breakdown of fees from all advisors like you can on the bill and insurance statements from your doctor.

This means that the burden of finding the right financial advisor is on you. I have written some questions that you can take to your next financial advisory meeting or even if you are seeking a second opinion!

Questions for your next financial advisory meeting:

  1. Will you clearly outline all of your fees in writing? Transparent fees are preferable in any business but are especially important in the financial services industry (where products and services may be laden with multiple levels of fees).  Be certain your advisor can provide detailed cost explanations associated with any services or products.  Common examples are the commissions and internal operating expenses often associated with mutual funds.  These fees may be in addition to your advisor’s fee.
  2. If you are paid by anyone else to give investment advice to clients, then are you paid to recommend certain products or services? Understanding who (besides you) pays your advisor helps you ascertain if their recommendations are in your best interest or are the result of a specific compensation arrangement with another party.
  3. Do you receive commissions or transaction fees as part of your compensation? Again, if someone is incentivized to sell investments then you must delve deeper in to how they manage accounts in order to make certain they put your interests ahead of their own.
  4. Is your fee schedule negotiable? Some advisors may have the latitude to customize their fee schedule based on your specific needs. It certainly never hurts to ask!
  5. Do you have an hourly rate or flat-fee option as an alternative to an annual fee? Some financial services like financial planning can operate efficiently under an hourly rate or flat-fee arrangement, other services work better under an annual fee arrangement. The downside considerations are that flat fee advisors have an incentive to spend as little time as possible on your project while hourly rate advisors have an incentive to drag it out.

Choosing the right financial advisor is a big step into investing in your future. Give us a call at Stockman Wealth Management if you have any questions. We’re here to help!