With approximately 330,000 personal financial advisors in the United States, choosing an advisor to help you make financial decisions that safeguard and grow your wealth is critical and can be difficult. The questions you ask can reveal important insights about their practices, integrity, and suitability for managing your wealth. Here are ten essential questions to guide you:
1. Are you a fiduciary?
Legally, a fiduciary must act in your best interest. This distinction is crucial, as it ensures that the advisor prioritizes your needs over personal gain. Unfortunately, not all financial advisors are fiduciaries.
2. How are you compensated?
Understanding their compensation structure—whether it’s fee-only, commission-based incentives, or a combination—will help you identify potential conflicts of interest.
3. Does your firm generate revenue from sources other than client fees?
Some firms may receive compensation for investing in their proprietary products and associated fund manager investments, which could influence their recommendations. Ensure their revenue sources are transparent and align with your best interests.
4. Is your firm’s investment platform a source of revenue for you or your firm?
If a firm generates revenue from their investment platform, they will be conflicted when it comes to manager selection and portfolio composition.
5. Have you or your firm ever been disciplined for unlawful or unethical actions?
A clean disciplinary history is a strong indicator of trustworthiness and professionalism. Conduct thorough background checks to ensure your advisor’s integrity. Visit the SEC Investment Advisor Disclosure to learn more about the firm and its advisors.
6. What is your investment philosophy?
Your advisor’s approach should resonate with your financial goals and your family’s needs. Understanding their philosophy allows you to gauge their strategies and investing approach
7. Does your firm have a background and expertise in non-public investments?
People with high net worth often invest in private markets. Inquire about the firm’s experience, due diligence process, and success in managing such assets to ensure they can source top-tier investment opportunities.
8. How many clients do you manage, and what is your retention rate?
An advisor with a manageable client load and a high retention rate is likely to provide personalized and attentive service. This balance is key to a long-term successful relationship.
9. Can your firm provide reporting across my entire balance sheet?
Holistic wealth management necessitates comprehensive reporting across your entire balance sheet, not just the investments that the firm directly manages. Ensure your advisor can offer detailed insights into all aspects of your financial landscape, including all investments, liabilities, and assets.
10. Does your firm take custody of or have access to my assets?
Knowing who controls your assets is crucial for security and trust. Determine whether the advisor’s firm has custodial rights, and how this may affect your asset’s safety and accessibility.
Conclusion
Selecting a financial advisor can be a difficult decision, but it’s important to have the right partner to support your financial goals. You can uncover critical information by asking these questions. Transparency and alignment with your goals assist you in making informed decisions based on your specific objectives.
Caprock is proud to serve as the family office for a select group of affluent clients who value our integrity, experience, and investment approach. Wealth often leads to complexity that few firms can support.