Show Notes
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.
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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?
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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?
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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?
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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.
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00:06:42] You understand the value, but oftentimes "You get what you pay for" really does resonate, even in this industry.
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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.
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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.
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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.
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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.
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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.
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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.
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00:08:44] Next question. Do you specialize in certain types of clients now while this is not necessary? It is really nice. If you're in a particular situation in your, in your financial journey in your life, or you work in a particular field or for a particular company, and that advisor specializes in that field, that company, or your individual needs, Now I've heard that some people have said to them, other advisors I met, I said, Oh, who is your ideal client?
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00:09:11] What markets do you serve? And they look at me and say something like, Oh, I focus on serving women. I handle the female market. I'm like, okay, that's great. That's still the majority of the population of the country. So when I'm looking at this, I'm saying. Are you doing financial planning for retirement?
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00:09:30] Are you doing financial planning for college? Are you just focused on managing the investments? Are you doing a full plan for someone? Retirement planning. A lot of people focus on the accumulation phase. There are far fewer that focus on the distribution phase. Once you retire, making that money last for you as long as possible.
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00:09:49] So there are different specialties. So definitely ask what they specialize in, what type of clients they'd like to work with for me when I look at what type of clients like to work with are nice people, fun people. When I ask my clients for referrals or my clients give me referrals, they notice in somebody in.
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00:10:06] Then I'm going to enjoy working. They know I'm not the guy that's calling somebody with a hot stock tip. They know, and the person that's there, that's reliable, and we're doing sound planning. . So find out what sort of people, your potential advisor specializing.
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00:10:22] This goes right into the next question. What services do you provide your clients? Well, depending on what services you provide, those services are just going to support the type of client or the specialty that you work in. The next question is, do you have any minimums for me to work with your firm.
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00:10:38] Do I need to bring over a certain level of assets or a certain amount of money to invest with you? This is especially popular. If the firm is charging fees based on the level of assets, this is less popular, or the minimums can be reduced if you're doing holistic planning. So I'm doing a financial plan with someone they're paying me for the time.
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00:10:57] To help sit down with them, review their goals and objectives, clarify them, and develop a plan to reach them. Then I give them advice on how to reach those goals. It has nothing to do with how much money they're giving me to manage. So there's a distinct difference there. Do I have a minimum? Does my firm have a hard minimum?
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00:11:17] No, we do not. However, on my website, you will see that we have a suggested level of household income, and we have a suggested minimum level of assets. That is something because some of the more advanced planning techniques that we use do require a certain level of assets or income to qualify or to participate in them.
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00:11:34] So it is a little bit easier, and we can provide more value to the client if we're at certain levels, but we do not have a hard minimum. Next question. How often will we meet? Some people want to meet annual semiannual, quarterly. Some people want to have, and this flows right into the next one. How often will I hear from you?
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00:11:54] Meaning the advisor and how so the meeting and how come I hear from you? Kind of go hand in hand. over the years, I've tried semiannual. I've tried quarterly; quarterly seems to be too often. And for people that are very busy, it's a lot to meet quarterly. Semi-annual. It is never quite enough to really review your money only twice a year.
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00:12:16] So it might seem odd, but the trifecta is the ideal number of meetings for my clients that I found over the past 20 years. So we will meet three times a year. Oftentimes two of those are in person. One of those is virtual. They will receive regular emails from me, newsletters from my, phone calls, if something's urgent, of course, or even text messages, if something's urgent.
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00:12:39] And I encourage them to let me know whenever there's a major change in their life at work promotion, demotion bonus, someone gets married, someone passes away, someone's born relocation, whatever it is, I want them to reach out. So you're going, we have three formal meetings a year. The communication is ongoing and.
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00:12:58] That two-way communication is very important. So you can constantly adjust the plan and make those turn by turn directions and change it for the client to get the best possible outcome.
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00:13:09]Another question, why did your last client hire you? And that feeds right into the next question of what do your clients like about working with you? I feel those are two sides of the same coin because what the clients like is going to be a reason why they hired you. This is important, and this is the spot where the advisor can give you their mission statement, their value proposition, or whatever they think differentiates them from other advisors.
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00:13:38] In my case, The top three things that clients have resonated with when we've researched with the clients is why they hired us. is our focus. The three main focuses are the first education. first and foremost, we are educating them.
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00:13:51] So that way, they're comfortable. They sleep at night; they understand what we're doing. But second, the educational part is also for me constantly taking classes constantly going to a different symposium, a different meeting. Researching different investment products, researching different investment ideas, constantly trying to learn and bring them best.
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00:14:10] Now the followup of that is we are never pushing. We are trying to introduce ideas. We're trying to add value. If the client's not comfortable with it, they're not comfortable with it. I only want the things that align with their values when they're comfortable with it. So we'll share ideas if they don't want to do it.
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00:14:26] That is fine. We'll find another way to do it. Or. We'll just put it on the sidelines in perpetuity, or we're constantly trying to often the best of what's out there and then let them make the decision if they're comfortable or not. And then third, I want to say we're here and we treat clients like family.
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00:14:45] It may not be the family that they were born into. It may be the family that they want to have the desire, but we treat the clients like family, and we treat them very well. So what brings them in the door is the education. On both sides, the ongoing ideas and options and strategies to constantly improve what they're doing and then the being there for them and treating them like family.
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00:15:08] And I really hope that you get something similar to that when you speak to whatever advisor you're interviewing. Next question. How do you measure success with your clients? And here are a couple of examples of client's ability to achieve their goals. How a client feels about their money and how much money they've made or lost in the past year or over the years, you need to make sure that how the advisor view success is the same way you're viewing success.
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00:15:37] So the two of you are aligned for me. It's about the clients achieving their goals and reaching milestones along the way that we know they're on pace to achieve their goals. Of course, the return on their money matters quite a bit, but again, There should not be looked at in a small part or in a fishbowl because some client comes to me and says, for instance, Oh, how did the, what was the return on this investment in the last quarter?
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00:16:03] Well, that investment strategy might not have performed well in the last quarter, but might not have been designed to then investment strategy. Might've worked really, really well over the past three or four years, but the last quarter to economically, that strategy was not set up for success. So I advise that if you're looking at the returns on the money, It should be a portion of the overall value that the advisor brings.
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00:16:26] But look at it more longterm a year, two years, five years, 10 years, and go through a couple of economic cycles because the short term for better or worse can be very, very misleading. The experience also comes into play there. Have they been through downturns? Have they been through recessions? Have they been through depressions?
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00:16:45] Have they been through a pandemic? How have they helped guide their clients? So you also have that level of not just how they are viewing success. But again, that feeds into the other question of how often are they in touch with you? Are their goals aligned with yours? The next is, are there any conflicts of interest I should be aware of?
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00:17:04], for instance, and this was cited in an article as an example of the conflict of interest that one adviser might charge a higher fee for a certain service than another advisor. Well, each advisor has different strengths and weaknesses and sets the practice up the way they want.
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00:17:21] They might be charging more than a different advisor because they're actually much better at that service or that specialty. They might be charging more because they're located in an expensive metropolitan area, as opposed to a very rural area. It's not necessarily a bad thing, but that could be considered a conflict of interest.
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00:17:40] So a fiduciary has to give you a copy of certain disclosure documents, and it will list if there are any conflicts. And if there are any, how they address them, how they avoid them
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00:17:51] next question is, how does your team work together? To work with me and then feeds in the next one up. Will you coordinate your advice with my tax situation? how our team works with the client and especially when it comes to tax advice, is we are open to working with. All of the client's professionals, we would ideally like to be the leader of the financial team and help to organize things.
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00:18:14] But quite often, the client already has a CPA in place. The client already has an attorney in place. The client oftentimes already has a banking relationship in place, and we need to work with all of them to achieve the ultimate goal, so coordinating with the other professionals in their lives.
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00:18:31] It Is absolutely paramount. And we incorporate all members of the team. If they don't have a certain member, they don't have an accountant, or they don't have an attorney.
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00:18:41] We can help them in finding one, but we definitely want to have an open line of communication with all of their professionals. So when it comes to, how do you coordinate their tax situation? Other things we work with all those other advisors. The final question is what happens next. So you're having the meeting with the advisor, and you like
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00:19:01] And for instance, in my firm, we do an introductory call. Some people call it a discovery meeting. Some people call it a right fit, meeting some to call an introductory meeting, but there's a 20 to 30-minute phone conversation. First, I don't ask them to send over statements or any personal information. And we have a conversation about whether or not we're a good fit. And if we'd like to work with one another and we take it from there and from there, or the advisors should be able to list.
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00:19:23] Next steps. Ideally, there's a timeline, but they can list. Okay. Here's what we're going to cover in our next meeting or meeting after that. Here's when we'll sign some documents, here's when everything will be set up, here's when we can review it together and make sure you're comfortable, but they should be able to give you what the experience is going to look like and the timeline you can follow.
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00:19:41]. And that is the most comprehensive list of questions I was able to find that I think it gives you some real insight as to whether or not the relationship will be successful and whether or not you're making a smart decision in hiring that advisor.