financial vetting checklist

Financial Advisor or Financial Phony: The Ultimate Checklist

In Articles by Mandi Villarreal

The stakes are high when you open your finances to an advisor, so don’t skimp on your homework. But how can you guarantee that your expert is reliable? By utilizing our Ultimate Financial Advisor Checklist you can be self-assured that you’re asking the right questions of us or any other advisor you choose. At Ark Financial Group, our team is here to help and make sure you feel comfortable, confident, and happy with our comprehensive suite of financial services.

  1. What Is Their Background?

Think like an employer when looking at a potential advisor’s criminal and regulatory record, as well as references from past employers. You can find regulatory records for stockbrokers, investment advisors, insurance agents and their firms online. Look for any formal investigations and disciplinary actions initiated by regulators, along with customer disputes, certain criminal charges and financial disclosures, including bankruptcies.

  1. What Do Current Clients Say?One Customer Well Taken Care of...

Don’t wholly depend on the reputation of a big firm or recommendations from friends, family or members of your country club. People who refer you to an advisor may have different goals than you. For instance, your golf buddy may want to retire before age 40 and doesn’t have any kids to think about. But you may be planning to retire at age 75 with money left over for your three kids. Thus, your financial plans and needs will vary drastically.

So, it can be helpful to ask for references from past and current clients in life situations similar to yours. When talking to the clients, get specific about their experiences. How often did the advisor communicate with them? Has the advisor ever admitted to making a mistake? How often do they evaluate their goals with the advisor? Has anything about their relationship surprised or disappointed them? Has the advisor performed well in bull and bear markets? Is the advisor ethical?

  1. Review Qualifications

How do you make sense of alphabet soup in financial advisor designations? Do your homework and find out which titles offer the kind of expertise you’re looking for and need. Your best bet is to work with a CERTIFIED FINANCIAL PLANNER™ due to their extensive coursework and rigorous examination that culminates in to adherence to ethical standards. Many designations sound impressive, but they don’t require more than a couple of two-hour classes. There is also a huge difference between somebody that has a natural affinity towards financial planning and investments and somebody that focuses on selling products like insurance plans.

  1. Does the Advisor Speak Your Language?

Does a potential advisor implement financial jargon in their conversations with you, such as “secular trend” and “organic growth” without explaining what the terms mean? Investment and financial language is overwhelmingly confusing with technical terminology and complicated concepts. It’s the job of all financial advisors to ensure you understand by translating those ideas and terms into a language that is both understandable and relatable to your situation.

Jargon Spoken Here

Placing the management of your finances and investments in somebody else’s hands can be a stressful action in itself, so if a financial advisor cannot, or does not want to, break down those terms for you, it may be a sign to keep searching for a better fit.

  1. What is Their Track Record?

Advisors sometimes say they can’t easily describe their track record, since they tailor each portfolio to an individual client’s needs. But that excuse doesn’t hold up.

Possible Questions to Ask:

  • How does your firm incorporate my entire financial economy in your investment management?
  • What type of income, goals, and net worth does your common client have?
  • How does your investment management help mitigate your client’s tax liability?
  1. Can They Put It in Writing?

Ask for a formal written outline of the services the advisor will be providing and what fees you will be paying. By setting concrete expectations, you can determine if an advisor is going to adequately help you set goals and do budgeting or only make investment decisions.

A smart strategy is to ask advisors to spell out what they think you are trying to achieve and what they think you should do to get there (this includes investment strategies, specific benchmarks and suggested financial products). If advisors can’t explain their plan in simple terms, then you found another red flag.

Fiduciary versus Broker

Also ask advisors to clearly explain who else stands to gain from your relationship — such as affiliated broker-dealers and insurance agencies — as well as exactly how much the advisor, the advisor’s firm, and all those other parties will earn from your business.

Finally, find out whether the advisors are going to take on fiduciary responsibility, in which they are legally bound to act in your best interest. If an advisor receives compensation via fee (such as a planning fee or asset charge), then they are indeed a fiduciary. Should you find yourself with someone earning a commission, then they are not a fiduciary.

  1. How Do They Make Decisions?

Use the advisors record to understand how they make decisions. You can inquire about an advisor’s performance, but what you really want to know is how the advisor processes decisions. For us at Ark, this is a large component of your initial financial planning meeting.

Consider asking a potential advisor to dissect a specific situation that occurred to them. For instance: ” Take your worst investment and evaluate how you made the investment. How did you monitored the situation? What decisions were made along the way to stick with it or get out?”

Trust your gut. Are they avoiding the question or putting a positive spin on everything? This potential red flag means they will not handle tough decisions for you, which wastes your time and money.

Finally, reach out and consult with your accountant, lawyer, and other financial professionals for their opinions on individual strategies. Your professional team should work together in your best interest. If you already have a good team backing you, then make sure they feel good about the potential new guy. The affiliates and alliances associated with a potential advisor say quite a bit about their competencies and reputation. Check out the Ark Financial Group Strategic Partnership Alliance!

Your financial team

Ark Financial wants to be part of your team.

In Conclusion

You are ultimately responsible for your family’s money — you’re the chief executive of your own investment company. Your financial advisor/planner, mutual-fund/wealth manager, or anyone else who handles your finances should report directly to you. Even if you don’t understand the ins and outs, you’re responsible for ensuring that they handle your money properly.

Once you recognize that you’re in charge, you can approach your advisors like a boss — not just a client. Put them through a tough vetting process and ensure they’re competent and trustworthy looking after your best interests.

Related Post