Questions to Ask Financial Advisor References

In Interview Questions for a Financial Planners, Interview Questions a Broker, and Interview Questions for Money Managers there are questions that may be specific to a particular specialty.

But no matter which kind of advisor you are hiring, here is the general information that you want to get from references and why the responses will help you make a decision about the advisor:

How did you come to work with the advisor? How long have you been working together?

Just because you've read this and learned to pick an advisor the right way doesn't mean the advisor's other clients did. Get the story on how this person found out about the advisor and what kind of work he put into qualifying the person before hiring, as it will go a long way to coloring the rest of what you hear from this person and whether he is someone who is detail-oriented or who leaves things to chance.

The more you determine about the reference's background, the more easily you can evaluate whether his standard of a good relationship measures up to yours. Obviously, you want to know how long the reference and advisor have worked together and whether the relationship is ongoing. (Many references for real estate agents and lawyers are people who have no continuing tie to the advisor because they do not have a current need for services.) If there is no current relationship, find out how long ago the person worked with the advisor; you would prefer a recent client to one from years ago, when the practice presumably was smaller.

Smart Investor Tip

The more you learn about the reference's background, the more easily you can evaluate whether his standard for a good relationship measures up to yours.

How often do you hear from the advisor? Who initiates contact and what are most of those calls about?

A big part of every successful advisory relationship is communication. That doesn't necessarily mean a phone call every week, but it does mean an advisor should show appropriate concern.

For an insurance agent, for example, it may be when policies are up for renewal. In the case of real estate agents and lawyers working on a case, it may be at regular weekly intervals or whenever there is any action you need to know about. For brokers and financial planners, the amount of contact will vary depending on the scope of the relationship.

The general rule is simple: The bigger percentage of your assets you entrust to someone, the more often you want to hear from her.

If the advisor initiates all contact, but only when there is a sale to be made—a hot stock tip, a change in the recommended mutual fund portfolio, or a new insurance product that might generate a commission—that would be a sign the advisor is more interested in doing transactions than building a relationship, even if his happy client/reference hasn't figured it out yet.

Does the advisor always return your calls promptly? Does he or she give you the time necessary to answer questions?

You can't overemphasize communication. While you can't expect an advisor to take an hour in the middle of his day to take an unsolicited phone call that rambles over various points of your financial situation (and maybe on to how the kids are doing, etc.), you have a right to expect that each call will be taken seriously.

Find out, too, how the advisor reacts to what might be considered dumb questions. Even if you never ask one, you want to feel like you can without being made to feel stupid. (There are no dumb questions, only things that people would be embarrassed to ask; you should never be embarrassed if you have a good working relationship with your advisor.)

Does the advisor include your spouse—or parents or children—in discussions and meetings?

Good advisors get to know the family, at least in the beginning. After that, however, many deal exclusively with the decision maker. There's nothing terrible about that. In my household, for example, my broker, insurance agent, and tax preparer all deal with me. Susan is included in important meetings and has enough of a relationship with each advisor to feel comfortable if anything should happen to me.

But if you and your partner make all decisions jointly, you want to make sure the advisor is happy explaining things to you as a couple and has the patience to do that, rather than pressing for instant decisions.

How does the advisor react when you raise questions or come in with suggestions?

Many advisors try to make all clients fit into the same basic circle of reference. Accountants, for example, decide which types of deductions they like to pursue and may focus on those; insurance agents and financial planners have their favorite products.

If you ask questions, rather than immediately accepting the advice as gospel, or if you bring suggestions to the table ("I read about a [mutual fund, tax deduction, home-selling strategy] that I think might work for me…"), you want to know the advisor won't give you the brush-off. The advisor would never acknowledge giving short shrift to a client issue, but only an existing client would know for sure.

Smart Investor Tip

A reference's disappointments in working with a counselor may not be items that bother you, but it's important to ask about perceived shortcomings.

Have you ever decided not to take your counselor's advice? If so, how did she react?

Just because the reference is happy with the advisor's service does not mean he has taken all advice blindly. You want to find out what suggestions the advisor may have made that the client didn't like—why did the client decide they were not appropriate?—and how the advisor responded when her recommended course of action was not taken.

Have you ever had any pricing/billing problems? (If so, how were they resolved?)

You always ask an advisor about how he charges for his work. You should ask the reference to make sure there never have been any problems with the advisor's charges. If there have been issues, find out how things were settled (and you may want to rehash billing procedures with the advisor before finalizing your hiring decision).

Has anything about the relationship—or the financial outcomes from it—surprised you?

This is a good way to find out if the relationship has lived up to, or exceeded, expectations.

Has the advisor's service ever disappointed you and, if so, what did you do about it?

Many times, a client working with an advisor does not recognize problems or disappointments until he is asked to think about them. Issues then come into sharper focus.

A reference's disappointments may not bother you—perhaps he wanted more face-to-face contact and you don't care about that—but it's important to ask about shortcomings.

Have you ever worked with other advisors? If so, why did you make a change—and what does this advisor do better than the last one?

Many people bounce from one advisor to the next, rather than picking one advisor with whom they can work comfortably for a lifetime. If the reference has worked with other advisors, that experience may be valuable. Presumably, the old relationship was lacking in some way, and the new one doesn't have the same problem.

Again, this helps qualify what the reference wants from the relationship and how it compares with your desires as well as how well those needs are being met.

What do you think the advisor does the best?

Hopefully, what an advisor does best is something you value as a prospective client.

Remember Al, the would-be best broker in town who wound up losing the stock-picking contest using the same miserable advice he gave clients? What he did best was schmooze customers and make them feel important.

No one knows better than you what you want out of an advisory relationship, whether it is hand-holding, financial acumen, the emotional discipline to stay the course, or whatever. You are looking for an advisor whose strong points fit your needs.

Is there any area in which you wish the advisor would give you even more attention?

This is a logical follow-up to the previous question. Again, it helps you determine whether your expectations for the relationship are in line with the reference's and helps you decide if the advisor can meet your specific needs.

How long do you anticipate working with this advisor? (Or, if the advisor is hired on a need-now basis, such as a real estate agent: Do you anticipate working with the advisor again?)

This is a substitute for the standard hiring question asked of a reference: "Would you hire the candidate again?"

You're looking for financial relationships that can last a lifetime, or close to it. Yes, a reference is going to be biased and say nice things. But if she can't see working with that advisor for a lifetime (or again), then you need to know why she might hire someone else. Indeed, you might want to hire someone else, too.

Would you recommend this advisor for your mother, your brother, best friend, or your (adult) children? Is there anyone you would NOT recommend this advisor to?

If my parents had ever asked me to recommend a financial planner, I would have recommended one person for my dad, a different person for my mom, and a third person to handle them together (and they have been happily married for well over 50 years). It's about personalities working together.

If the reference recognizes that the advisor would not be right for "everybody," then you want to know who he would say is the wrong client for the advisor, and why. If the reference gives a description that sounds like an assessment you might make of yourself, then he has just told you that he doesn't think this advisor would be right for you.

Key Points

  • Don't take referrals or references at face value. They're not worth anything until you get the information you want.
  • Keep your questions to the tenor of the relationship and the demeanor of the advisor. These are the things that the advisor can never give you a clear picture of.
  • An advisor who won't give you references to check now may not give you the service you want later.
  • References and referrals may try to sell you on the advisor, but you didn't call for a sales pitch. Keep the criteria you consider important at the forefront of your mind, and remember that no one but you will live with the consequences of your selection.
By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2020. Content published with author's permission.

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