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Early in her career, certified financial planner Lynn Ballou got a strange question from a potential client: “What kind of car do you drive?” he asked. She drove a humble Honda Civic and he, at first, was not impressed: “He told me that he drove a Mercedes and that if I didn’t drive a car at least as nice as his, then he was concerned about whether or not I was good at planning,” says Ballou, who is now the senior vice president at EP Wealth Advisors. After laughing it off and telling the client he should be happy that she drove a reliable and inexpensive car because it meant she practiced what she preached about spending more on what mattered to her (not cars), Ballou says, laughing, “He ended up hiring me but spent a lot of years trying to convince me to upgrade my ride.” Use this tool to get matched with a planner who meets your needs here.
While that may be an obvious question not to ask, others are less so. Here are four questions that while, on their face, may seem helpful to you, probably aren’t as helpful to you vetting the advisor as you might think.
1. How many clients do you work with and how many accounts do you manage?
More isn’t necessarily better, and neither is less. Just because an advisor has a ton of clients doesn’t mean he’s great, and fewer clients doesn’t mean she’ll have more time to spend with you. “It’s important to understand how much bandwidth your financial advisor has, however, because of technology, bandwidth isn’t totally dependent on the number of clients or accounts that are managed. As many advisors can attest, sometimes one client with a very small account can take up much more time than ten clients with many accounts,” explains Charles Weeks, certified financial planner and founding partner at Barrister.
A better question: Can you walk me through your client process and explain what I can expect from you if I decide to work with you? Use this tool to get matched with a planner who meets your needs here.
2. What’s are your assets under management?
Focusing on assets under management can be misleading. “Just because an advisor has a lot in assets doesn’t necessarily mean that advisor is a right fit for your situation. These days most clients are looking for comprehensive financial planning or maybe some specific advice on a topic like net unrealized appreciation,” says Weeks. So just because an advisor might be managing a few hundred million dollars, doesn’t mean they can help you with your needs.
Better questions: What investment benchmarks do you employ? What asset allocation will you use for me?
3. What does your past performance look like?
This often isn’t that helpful of a question because different clients have different needs — some may want rapid growth, some slow and steady safer growth. “The idea here is that investors should focus on building a diversified portfolio based on their risk tolerance and goals. Cashing past performance is not a recipe for success. Making steady progress toward your goals is always more important than short-term performance,” says Amy Richardson, certified financial planner with Schwab Intelligent Portfolios Premium.
A better question: Can you tell me more about your investment philosophy?
Use this tool to get matched with a planner who meets your needs here.
4. What are your market predictions?
Weeks says, “Unfortunately, our crystal ball is as good as yours. If by chance your advisor does offer you market predictions, or worse — if they guarantee them — run for the hills and don’t look back.” Your advisor should tell you that they will work with you to figure out your risk tolerance, create an investment policy statement and invest accordingly. “Based on this information, they can back-test your allocation and provide a general idea of what returns may look like over the next decade or so,” says Weeks.
A better question: How will you handle my money during upswings, and downswings, in the market?