When it comes to planning your retirement, advice from a financial advisor can go a long way. And reaching out for professional help shouldn’t be intimidating or stressful. That’s why we’ve put together some information about working with an advisor. Explore this section to see just how much value they can add to your retirement plan.
How to Interview an Advisor: 10 Good Questions
How to Interview an Advisor: 10 Good Questions
You’re about to sit down with an advisor who – you hope – will look after your financial welfare and guide you toward a comfortable retirement.
Even if you don’t know much about investments, investing strategies or financial matters in general, you should not feel intimidated. After all, financial advisors themselves will tell you that you should treat it like a job interview – and you are making the hiring decision.
If you were hiring, say, a tour guide, you would want to know some basics. What qualifies this person to guide you around this unknown place? What kind of service will they provide in terms of transportation, information, commentary and side trips? Do they typically guide 20-somethings along mountain trails with ziplines or busloads of seniors to viewing platforms? Will the person you are speaking to guide the tour or will it be someone else and – if it’s someone else – do they speak your language? How much will all this cost, and how will you pay? And of course, if this is a long tour, you might want to get a feel for how compatible you are with this tour guide. Can you get along?
Perhaps surprisingly, it’s not all that much different interviewing a potential advisor.
Before you make any decision about a potential advisor, satisfy yourself that this person is qualified and registered – as is required – with your provincial or territorial securities regulator. Go to the Canadian Securities Administrators website (www.securities-administrators.ca) and follow the instructions for checking registration, disciplinary history and Internet news sources for any items that could be red flags or trails you may wish to investigate further.
Once that’s out of the way, you’re ready for the meat of an interview. As suggested by Sandra Foster in her book Who’s Minding Your Money? Financial Intelligence for Canadian Investors (John Wiley & Sons), let’s divide the questions into categories.
First, just as you would with the tour guide, ask about the service you will get.
- As an advisor, what kind of advice do you give?
In planning for retirement, you will want a comprehensive financial plan. With your active input, your advisor should expect to create a comprehensive investment portfolio, recommending an investment mix and component investments that fit your needs in terms of your financial situation, life circumstances, personal and financial responsibilities, and personal and retirement goals. Your advisor should also expect to recommend adjustments to your portfolio – buying and selling opportunities – with changes in the marketplace and your circumstances.
- How often will we review the plan?
Your retirement plan should be reviewed at least once a year, and more often when your circumstances change and in the last five to 10 years before you expect to retire. However, your advisor may contact you in other circumstances as well. Find out how often this advisor expects to contact you.
- Who will I be dealing with when I call or arrive for my financial review meeting?
You may be surprised to find that the firm you are establishing this long-term relationship with considers you to be forming that relationship with their “team,” not an individual. Better to know in advance.
- Do you provide a summary of our meetings?
Some advisors rely on their firms’ monthly statements to summarize what was discussed and the actions taken. Others will provide you with a short summary of issues discussed, decisions taken and actionable items. This is an important point as some firms move toward “self-service” and less face time with clients. Next on the agenda are the relationship questions. Just as you want a tour guide who goes places and plans activities that are right for your age and interests, you want an advisor who deals with people in your circumstances and who can relate to your situation in life.
- What is the profile of your typical client, age-wise and financially?
Ask the advisor to describe the age, life stage, financial status and retirement expectations of their average client. Determine whether your portfolio will be larger or smaller than the typical one. If the advisor has clients who are like you, ask how the advisor helped them to improve their outlook and to achieve their investment and retirement goals.
- What is the risk profile of your typical client?
Ask about the typical investment mix and, specifically, some common investments. If most clients are in investments that have more risk than you are comfortable with, you may have to ask whether the advisor is used to dealing with people who are wealthier or have more disposable income than you have, or whether the advisor may be directing them toward riskier investments. No hiring interview would be complete without answering the cost questions. So let’s get down to dollars and cents.
- How will you get paid?
This is a key question because of the possibility that advice may follow the money. Some advisors get paid directly through commissions on your trades, fee for service or through a company salary, or a combination of these methods. Others get paid indirectly through deferred charges or trailer fees. Trailer fees are paid by a mutual fund manager to a salesperson – in this case, the advisor – annually for as long as the investor holds the fund. This could create a conflict of interest. Be sure you are comfortable with potential incentives to run up trading costs or channel your investments toward certain securities. Also, find out if there is a minimum annual fee.
- What annual cost do you estimate for someone with my needs and my portfolio size?
Compare the answer to this question with the estimated average gain in your portfolio. Your estimated return minus the fees and costs should be commensurate with the investment risk you are taking. Finally, we arrive at the compatibility questions. This is going to be a long-term relationship measured, ideally, in decades and not just years. Find out whether you want to go on a long journey with this financial tour guide.
- What is your investment philosophy?
The answer may be difficult for you to assess if you are not an experienced investor, but listen carefully. Does the advisor explain in terms you understand? Does it make sense? Your advisor should be very comfortable answering this question and should be able to hit it out of the park.
- What problems and opportunities can you identify in my portfolio?
An advisor’s answer will tell you a lot. If you haven’t already discussed your life circumstances, financial situation, responsibilities and retirement goals, the advisor should ask before going further. If you have discussed these things, the answer should refer to them. Try to get a feel for whether the advisor is putting your interests front and centre. It’s your money, so it should be all about you.