Earlier in the year I wrote about how to find a good financial advisor which focused on fee only and fee-based advisors. Very few of us will start off at that level so I wanted to focus this post around “advisors” at the retail level. The ones that are available at your local bank or at an investment firm.

Personally, I think you’re better off reading a book and managing your finances on your own but I’m not going to argue with someone who wants to save now. If your portfolio is small, or you need someone to hold your hand, that’s okay, just be aware that there are questions to ask your financial advisor.

Ask the right questions

What’s your title/education ?

This may be hard to believe but there is no formal credentials required to call oneself a financial planner. That’s right, you could put financial planner on your business card right now, and it would totally be legal. That being said you still want to ask if your advisor has any professional designations, and what training they have.

What experience do you have?

We’ve already established that education and titles are irrelevant so experience is a bit more important. Find out how long your advisor has been working, and what companies they’ve worked for. Have they worked with clients that are in similar situations to you? If this is their first job or they recently changed careers, maybe they aren’t the right fit for you.

What are you licensed to sell?

As you can imagine someone who is only licensed to sell insurance products will push you hard on insurance. If they’re only licensed to sell mutual funds, then of course they’re going to sell you those. You want to make sure that your advisor is able to offer you a wide range of products, and can explain the pros and cons of each.

Financial advisors don't require propertraining

How do you get compensated?

I keep hating on bank salespeople, but to be fair banks, employ qualified financial planners that provide great service and advice. You want to find out how many clients they have, and what their average client size is. Ask them if their compensation is on an ongoing basis, or do they make up front commissions?

Advisors at the retail level usually get paid a straight salary or on an hourly rate; their main goal is to make a sale and move onto the next customer. If you’re going to purchase mutual funds through your bank, you might as well do it through one of their financial planners so at least you can get real advice.

[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][icon name=”share” class=””] Related: 6 Bank secrets to be aware of

What are the fees I’m paying?

All products carry a fee which is referred to the management expense ratio (MER), you want to find out exactly how much this MER is. Mutual funds average about 2-3% which doesn’t sound like a lot, but that’s a lot of money when you compound it over 30 years. You should also find out if there are any fees to be paid if you decide to pull out your funds early, this is referred to as a deferred sales charge.

What’s your approach to financial planning?

This is one of those questions to ask your financial advisor where you’ll probably not be satisfied with the answer. Retail advisors don’t specialize in taxation, insurance, investments, or anything really– they’re pretty much selling you whatever is popular at the moment. That being said, you still want to ask if the advisor is able to advise a plan, and how they plan to implement it.

Pick the right financial advisor by asking what their style is

What is your decision making process with my investments?

When working with someone at the retail level, you want to know how they are coming up with their recommendations, so ask. Do they have access tools, or do they make their decisions based on what the research team recommends? Are the funds all actively managed? Are there lower cost options? The reality is, you’re going to have limited choices.

[icon name=”share” class=””] Related: Signs your advisor doesn’t know anything

Final word

If you haven’t figured it out by now, advisors with banks and investment firms tend to have limited knowledge– they don’t have a required fiduciary duty. Financial planners however have an implied fiduciary duty so if given the choice, use their services. Regardless of who you decide to work with, the key is to start saving now and do your due diligence.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

5 Comments

  1. Tonya@Budget and the Beach on May 11, 2015 at 10:12 am

    Right now I’m working with Shannon from Financially Blonde who is giving me great advice about my current financial advisor and said the same thing to me, that I’d be better off on my own with just a little more education.

    • Barry Choi on May 11, 2015 at 10:27 am

      Tonya,

      Yes it really is not that difficult to manage finances on your own. Took me about 20hours of research (including reading a book) and I’ve been on my own ever since.

  2. Our Big Fat Wallet on May 11, 2015 at 9:10 pm

    Another good question might be what their views on asset allocation. If someone gives an example of an asset allocation that is way out of whack for the person’s situation it would be a red flag

    • Barry Choi on May 11, 2015 at 9:11 pm

      Our big Fat Wallet,

      Good point, probably not much money to be made with fixed income.

  3. Nancy on December 13, 2017 at 1:15 pm

    What books do I have to read to start managing my own? I am lost!

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