First, what questions you should ask a financial advisor
When you meet with a prospective financial advisor for the first time, your gut instinct might be to tell the advisor what you’re seeking and ask if they can assist. However, if you’re looking for a truly objective financial advisor, you’ll have to approach the meeting differently, says Chapman.
Before sharing a lot of details about yourself, he recommends asking the advisor these questions, in this order:
- “Who is your ideal client?”
- “How do you help your ideal clients?”
- “What common problems do you help your ideal clients solve?”
- “Who do you not work with?”
- “How do you get paid?”
If the advisor can clearly answer these questions, the answers don’t raise any red flags, and the advisor takes the time to explain things, then you’re probably a good fit. It also helps if you like the person.
The fifth question is important when working with any financial professional, says Chapman. Whether it’s an accountant, a mortgage broker or a financial advisor, ask them, “Who pays for your services?” Ideally, you want the answer to be “You.” This provides the highest likelihood that there won’t be any outside influence on, or any conflicts of interest in, their advice. For example, if an advisor gets a commission from selling you certain investments or insurance packages, or for recommending a specific mortgage, that could be a conflict of interest.
How to do an advisor background check
Before you hire a financial advisor, you’ll want to do your homework. This involves doing a background check and confirming credentials.
Financial advisors should have at least one professional designation, such as Certified Financial Planner (CFP), Chartered Life Underwriter (CLU) or Registered Financial Planner (RFP), among others. You’ll want to verify with the appropriate issuing body or bodies that the advisor is in good standing. “It means they have paid their membership dues and attested they completed all continuing education requirements,” says Chapman.
Furthermore, if the financial advisor sells investments or insurance, you can check with the industries’ regulatory bodies to ensure they’re licensed. These organizations can also tell you if the advisor has been disciplined. For investing, use the online tools of Canadian Investment Regulatory Organization (CIRO) and Canadian Securities Administrators (CSA). For insurance, check with the regulator in your province or territory—for example, the BC Financial Services Authority (BCFSA).
Your advisor might also be willing to provide references from existing clients—just keep in mind that these are the ones who are happy with their work.
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