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Legal Disclosure: Tony Robbins is a board member and Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity and based on increased business derived by Creative Planning from his services.
Whether this is your first time looking for a financial advisor or you have decided to make a change from your existing one, it can be a nerve-wracking process. After all, finding someone you will trust with your financial future Is not something to take lightly. A mistake in your portfolio could affect when you retire and how comfortably you do so.
Although referrals from friends and family can be helpful, be sure to consider if those recommendations are coming from financially-savvy individuals in a similar situation as yourself. If your consistently-broke Uncle Eddy gives you the name of “his guy,” you may want to think twice before taking his advice. Literally anyone can call themselves a financial planner, with no need of education or credentials. This is why we asked Ajay Gupta to help us navigate the choppy waters with a list of questions you should ask before hiring a financial advisor.
The initial interview between potential advisor and potential client is a two-way street. The advisor will ask you questions to have a picture of who you are, where you are at and what your financial goals are, but don’t be passive in this interview. This is your opportunity to interview them as well.
If your advisor can’t provide a clear answer to these questions, you may want to consider getting a second opinion.
Questions about the firm
• How long have you been managing wealth?
Ideally you want to look for a firm that has been managing wealth at least ten years because they have experienced a full market cycle. However, consider that hiring a firm with 30 years experience may indicate that your financial advisor will retire before you do.
• What are assets under management?
A reputable firm will have $1 billion or more under management.
• Are you affiliated with a broker/dealer?
If the advisor answers “yes,” then you can end the meeting there. A true fiduciary is not affiliated with a broker or dealer, and being affiliated in such a way can influence their advice, as they are then in a position in which they may receive benefits and kickbacks for selling you a certain product.
• Tell me about the credentials of you and your immediate team.
Which of these designations do you currently have: Certified financial planners (CFP), Chartered Financial Analyst (CFA), Certified Investment Management Analyst (CIMA), Certified Private Wealth Advisor (CPWA), Accredited Investment Fiduciary (AIF), Chartered Retirement Planning Counselor (CRPC), Certified Public Accountant (CPA)?
It may looking overwhelmingly like alphabet soup, but these credentials are what set a well-qualified advisor apart from the random ‘financial planners’ who will happily take your money. Gupta recommends finding an advisor with a CFA or a CFP – what he refers to as the gold standard of the industry. However, he also stipulates that ideally all credentials would be represented on the team. (For the record, Gupta himself holds CIMA, CRPC, and CWPA credentials.)
To check that your advisor really holds the credentials he or she claims, you can go to a number of different websites, including: FINRA Broker Check, the SEC, the North American Securities Administrators Association or the CFP Board.
About their investment strategy & service model
• Tell me your investment philosophy.
This is where you want to determine the advisor’s thoughts on active vs. passive mutual funds, keeping in mind the well-documented high cost of underperformance within active mutual funds. You may also want to determine the advisor’s thoughts on real estate. If you are okay with being a little less liquid with a portion of your wealth, real estate could be an important part of a well-balanced portfolio.
• Tell me your service model. How are we going to communicate?
It is best practice to have at least a quarterly review with your financial advisor, so you can review your asset allocation and performance compared to the benchmark index. Find out if the firm will be responsible for scheduling that meeting with you, or if you need to call them.
• Can you show me an example of a portfolio review?
Seeing an example of a portfolio review will allow you to become familiar with the reports you will receive. It should include what the asset allocation is, what the ROI (return on investment) net of fees is, and compare that ROI to the major benchmark indexes. Be sure to ask your advisor of anything you don’t understand on the report.
• Where will my assets be held?
Gupta recommends that your assets be held with a low-cost reputable firm in the independent space, such as: Fidelity, TD Ameritrade, or Charles Schawb.
• Do you (the advisor) invest in the same investments that you are recommending?
You wouldn’t take advice from health coach enmeshed in unhealthy habits, so don’t make the same mistake in your finances. If your advisor is transparent, they may allow you to look at their own personal portfolio so you can gauge their own risk tolerance and asset allocation.
About their fee structure
• How did you charge for your advice?
Is there an initial planning fee? Do they charge a percentage for assets under management? Do they make money if they sell you a specific product? (If so, run!) Ideally, you want a firm that charges a fee of one percent or less. Some charge more if you are seeking financial planning as well.
About their service record
• Do you have any complaints on your record?
If you like, you can check this out for yourself before your interview by going to the Financial Industry Regulatory Authority (FINRA) website. If you don’t check before the meeting, follow up on one of these websites before you sign on the dotted line.
• Can I have three client references?
This is a standard practice that a reputable fiduciary will have no problem with providing.
If you need help finding a fiduciary in your area that best suits your needs, Portfolio CheckUp can introduce you to an excellent fiduciary near you that has agreed to a client bill of rights. For a printable PDF of questions to take to your first meeting with an advisor, click here.