Advisors can help you plan for retirement, save for education, figure out the best way to finance a home, or help stabilize your finances. Finding a properly qualified advisor that will help ensure your future financial security is incredibly important.
Robo-advisors as an alternative to traditional advisors are all the buzz these days, and are becoming more and more mainstream. They are a great alternative for investment and financial advice, and just as you would do when selecting a traditional financial advisor, prospective investors should do their homework before making a choice.
Asking the right questions will help you meet your financial goals sooner. Here are some questions you can use as starting points:
Questions to ask yourself
1. What are my goals?
It’s important to gauge where you are in life and what you wish to achieve. Your values will influence your final decision.
2. What am I currently paying in fees? What do I want to pay in fees?
With the new CRM2 rules coming into play and promised transparency, you may not have to worry about this for much longer. In the meantime while current fees being paid are still unclear, it’s a good idea to look at your statements and see if they induce sticker shock. If your heart skips a beat when you see the fees you’re paying, you’re paying too much. Once your blood pressure has returned back to normal, ask yourself what you think is reasonable to pay for the services you receive.
3. What am I getting for my money?
Are you getting good bang for your buck? Are you getting big picture advice? Are you seeing good returns? Make a list of what service you receive, and what you’re missing, and see if that lines up with your investment goals and values.
4. What’s not working for me with my current financial advisor?
Maybe it’s how often you’re in contact, or how much your current advisor charges. Either way, do the hard thinking to figure out what’s not working for you, and remember – you now have alternative choices, so you’re not stuck if you’re not happy.
Questions to ask potential advisors, robo or traditional
1. What licenses, certifications and credentials do you have?
Experience and credentials are important to consider when selecting an advisor. Ask how long they’ve been practicing, what firms or groups with which s/he is associated (or has been), and what experience they have dealing with people in similar situations to yours.
2. What services do you provide?
Services provided will depend on credentials, registration, the organization s/he works for, and areas of expertise. The purpose of asking is to confirm your potential advisor is registered with provincial regulatory authorities, and is qualified to help you with your needs.
3. What are your fees (or what’s your fee structure)?
Your potential advisor should reveal in writing how s/he will be paid. You need to understand how your potential planner is paid so that you can decide what works best for you.
Some advisors, like robo-advisors, charge a set fee for services they provide and can lower your investment fees by up to 90%. Find out what your typical yearly fees would be, if fees are cheaper the bigger your account is, and for larger accounts, ask how you can maximize CDIC limits.
Some advisors receive compensation directly from the product manufacturer, as their payment is part of the management fee of the mutual fund. This means there’s no money exchanged directly between the investor (you) and the advisor – the cost to the investor is fixed in the cost of the mutual fund. Other advisors may choose to charge their fee as a percentage of the assets they’re managing on your behalf. Potential investors be warned: 1% or 2% in fees may sound like a small number, but if you’re getting 6% returns, that 1% or 2% compounded over time can equal hundreds of thousands of dollars.
Ask if they have a written professional obligation to put your interests ahead of their own (fiduciary duty). You’ve worked hard for your money; think hard about where is best for you to spend it.
4. Are you regulated by any entity?
Advisors that sell financial products must be regulated by provincial regulatory authorities, and may also abide by a code of ethics through a professional association. Ask if they’ve ever been the subject of disciplinary action by any regulatory body or association, then verify the answer by contacting the organization.
5. What’s your investment approach?
Services will vary, just make sure you’re working with an advisor that considers your overall financial goals, and values. Even if your potential advisor specializes in a certain area, they should consider your overall investment objectives, risk tolerance and cash flow needs.
Robo-advisors like Nest Wealth use leading technology and industry-tested investment rules to create low-cost, customized global portfolios build specifically for your life goals.
It’s also a good idea to ask if the potential advisor deals with clients that have a specific net worth, level of investable assets, or levels of income.
6. How much contact do you have with your clients? Can we arrange in person meetings?
Some advisors will have an initial planning meeting and check in once a year… and that’s it. Other advisors will offer more support – it all depends on how involved you want your potential advisor to be.
What you want to avoid is working with an advisor that gives you bare minimum time, and leaves you thinking, “I thought I’d be in touch with them more regularly.”
7. What kind of security do you protect my personal data with? Where will my money be held?
If you’re going with a robo-advisor, it’s a good idea to find out where your money and data are held. Some companies hold your money in a brokerage account in your name at a bank, which offers you bank level protection and security should something ever happen, versus companies that hold your money in their own accounts.
8. Why should I work with you over another advisor?
Your prospective advisor should be able to tell you what sets them apart and makes their client experience unique – this is going to tell you if their strengths are what you’re looking for in an advisor.
Do your due diligence, follow your gut, don’t be afraid to ask questions, and decide what you want from this relationship. If you feel uncomfortable asking your current advisor questions, you’re not with the right advisor. Finding a great advisor can be difficult, but with new alternatives out there it’ll be very worthwhile once you do.