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The thought of hiring a financial advisor can be an overwhelming task. Most of our clients who had no prior relationship to a financial professional thought about working with one but weren’t sure where to start. In fact, a study by MagnifyMoney found that of its 1,500 participants, 42% thought financial advisors are only for the wealthy, 33% believed it’s too expensive to hire one and 25% didn’t think they had enough investable assets. On the other hand, 95% of those with an advisor said they believe the money they pay is worth it, and nearly half of the participants had a household income of less than $100,000. The numbers show that you don’t need to have hundreds of thousands of dollars or an extremely high income to invest or hire an advisor.

So, if you have been thinking about interviewing or hiring an advisor, here are five questions to ask your prospective hires to help you decide:

  1. Are you a fiduciary?

This question started to come up sometime around 2017 as the Department of Labor announced enforcement policies. By definition, a fiduciary is a person or organization that acts on behalf or a person or persons, putting their clients’ interests ahead of their own. If the advisor is not legally and ethically obligated to act in your best interests, your relationship might be more transactional, and you may not hear from them unless it is time to sell you something again. This leads us to our next topic.

  1. How are you compensated?

As a fee-based advisor, Sun Valley Financial is paid directly by our clients. This ties back to our fiduciary duty, legally and ethically requiring us to serve in our clients’ best interests. Brokers and insurance agents are compensated via commission, creating conflicts of interest as some products pay higher commissions than others.

  1. What services do you offer?

I have seen individuals in financial services call themselves financial advisors, coaches, managers, personal CFOs and more. You name it, I’ve heard it. The truth is that there are two distinct types of client-advisor relationships: transactional and planning.

  • A transactional relationship involves the sale of a product and possibly servicing that account. These individuals work mostly in a commission-based environment, receiving commissions directly from the investment or insurance company to steer their clients’ dollars toward them. They might be more inclined to sell the hottest product at the time or push the product the generates the highest commission.
  • A planner, or someone who focuses on the process rather than the product, will typically have a longer-term relationship with a client. These relationships can last years or generations. The compensation comes from fees paid by clients through assets under management or financial planning. As you can imagine, when compensation is the same regardless of product selection, the advisor can focus on a client’s best interest.
  1. What can I expect as a client?

Setting clear expectations from the beginning can save a lot of time and money. How often do you expect to hear from your advisor? How often does your advisor expect to meet with you? A financial plan can take anywhere from four to 12 months to design and implement, requiring the advisor and client to have multiple interactions during that period of time. A transactional or broker relationship usually entails contact with the client during the sales process and every few years thereafter.

  1. How does the advisor work with other professionals?

This is by far one of the most important and forgotten questions. Financial planning clients typically have two or three relationships with other financial services professionals outside of the client-advisor relationship. A client could have an insurance agent, a CPA and a mortgage officer they currently work with. The advisor’s job is to quarterback any changes or plan implementations and check with said professionals before making any changes.

There you go. Those five questions should give you an idea as to what to look for in an advisor. We at Sun Valley Financial are more than happy to meet with you to answer any additional questions, discuss our financial planning process and see if we are a good fit. Feel free to reach out by calling 602.960.0362 with any additional questions. Until next time, take care!