What questions to ask when interviewing a financial advisor

Making Smart Decisions with Josh Tirado

You're listening to making smart decisions with Josh Tirado. Today's topic is what questions to ask when you're interviewing a financial advisor. So essentially, I'm giving you the questions to ask when you're interviewing me. Here's what to ask me when I'm trying out for the job of being your advisor; I started this off because this is a very, very often asked question on Google. And if you Google, what questions to ask an advisor or how do you interview a potential advisor money manager, There are an absolute ton of questions out there. What I find interesting is most of them, especially at the top of the search, are very operational in nature.

[00:02:20] They're having to ask your advisor questions, such as what clearing firm are they using for the investments. What is this fee? What is that fee? what is the timeframe to handle X, Y, or Z? How are you handling these options? But nowhere are they going into asking about what is the person's investment philosophy? What value you add the does the firm offer?

[00:02:42] Do they have any unique value proposition? How often are they going to be in touch with you as a client? Are they going to be conducive to your needs or not? but rather than asking questions to form a relationship.

[00:02:53] And to truly interview the person that you're to going to be trusting with your money. They're asking things that are very operational, very basic in nature that I really don't think help you make a decision or gain a comfort level to work with that professional. The other issue I have with a number of questions or questionnaires out there. Does he give me the questions to ask? And then they don't tell you what the answer should be. So what good does the questionnaire have if you ask your advisor all of these questions without getting the answers? Then you have no point of reference.

[00:03:22] If the answers are a quote, unquote, good or bad, or right for you and your needs. So, what I'm going to tend to do today is give you a number of what I think are valuable questions, my answers to those questions and how it relates to you

[00:03:38], number one. Are you a fiduciary? My answer is yes. And I think the answer should be unequivocal. Yes. A fiduciary legally must put their client's financial interests ahead of their own. And not all financial advisors are fiduciary. The last two people that have interviewed me to become their financial advisor.

[00:03:58] The number one question they asked me was, are you a fiduciary? in this day and age and moving forward, I think the answer has to be yes. Why would you hire a professional who wasn't legally required to put your interests ahead of their own? I mean, that's, that's the whole reason you need trust behind it.

[00:04:12] But I think that's the right step forward in starting that conversation. Are you a fiduciary? My answer is yes. I think the answer should be yes. Question two and question three, roll into another. Let me give you both questions and then tell you how those answers for most advisors will probably overlap.

[00:04:31] And the next question is, how are you compensated for your services? And the fourth question is, do you get paid by anyone other than your clients? So this goes into there's a variety of ways. Advisors can be compensated; they can be compensated via commission. They can be fee-only where they're just charging a fee to manage your money, or they're charging a fee for the advice, the financial.

[00:04:53] planning

[00:04:54] Josh: or, in my case, I'm, fee-based I say fee-based because 80-90% of my practice is based around the fees for managing money and the fees.

[00:05:05] First and foremost, for doing the financial planning for my clients. There are still some investment options out there that longterm are cheaper for you as the client to do on a commission basis. Then on a fee basis. And one of the big pushes right now, in the compliance-world, related to my field, is to try and make that a level playing field that if you're charging a fee, at some point, you stopped the fees of the fees equal to what, the commission would be.

[00:05:31] Or the commission structure is more in line with what a fee structure would be. And I think that's, that is excellent. That's a great move forward, but there's still. Some investment strategies and some investments out there that just by the nature of how they're structured, presently in 2020, are not offered on a fee platform.

[00:05:51] They're only offered in a commission format. The next question is, are you paid by anyone other than your clients? Again, that's what fits into are you paid commissions by some company as opposed to the fee?

[00:06:05] So I really think these two questions go to go together. The other followup is if you're paying a fee, what are the terms of the fee you want to know? Are you paying an hourly basis? Are they going to bill you every time you meet for the hours they spent with you and behind the scenes, are you paying quarterly?

[00:06:23] Are you paying semiannual? Are you paying annually? What is the structure? Does it fit, with your needs and your budget? And most importantly, based on the fee you're paying, are you getting the services that you need in the want for what you're paying? I don't need to have a discussion with you about value.

[00:06:42] You understand the value, but oftentimes "You get what you pay for" really does resonate, even in this industry.

[00:06:51] The next question. Is what is your investment philosophy or approach? Now? I think this is an important question. I also think it's kind of a loaded question. As things change over time, your needs are going to change. Perhaps your advisor's philosophies are going to change. Not only because they've had a change of heart, but they're adapting to the environment and what's going on around you.

[00:07:16] There's an old saying that everyone's strategy works right up until it doesn't. Mike Tyson often said everyone has a plan until they get punched in the mouth. Things change. The world changes rapidly. So there's nothing wrong with adjusting your strategy. If anything, I think that's a smart move, but you do want to know what their basic philosophy and approaches. If someone's very aggressive and you're very conservative, you're not going to get along.

[00:07:39] It is not going to be harmonious—type practice. So ask him about their philosophy and approach, but understand that that can change over time. And as it changes, that's a conversation they should have with you, but don't be alarmed. Don't hold it against them. If it's changing, it's probably changing for the right reasons.

[00:07:56] In my case, we've, we've trademarked an approach that we call practical tactical. The practical part being is there are a core investment philosophy and a core of stable investment holdings that, that we view the base of your strategy. It can be in different accounts. It can be different investment products, different investment types, but we have a core.

[00:08:19] The tactical part is then the overlay. I liken it to adding seasoning to a soup. It doesn't take a whole lot to change the flavor and add a whole lot of taste to it.

[00:08:29] So our strategy is practical. Tactical. Some places use something similar. They referred to it as core and satellite. some firms refer to it as just being properly diversified. It's all in how they structure it, but there should be some sort of philosophy.

[00:08:44] Next question. Do you specialize in certain types...