Yahoo Finance The six questions to ask your financial advisor
If breaking up is hard to do with a romantic partner, it can be even trickier when you need to call it quits with your financial advisor. At least with a love interest, you don’t necessarily risk losing money. But it could cost you if you’ve got all of your investments in the hands of someone you want to part ways with.
“Depending on the nature of the investments there may be some fee implications with changes between advisors,” explains certified financial planner Peter Andreana, a partner at Continuum II Inc. in Burlington, Ontario. “There might also be a fee from the relinquishing institution to simply close the accounts."
To avoid ending up in situation where you need to find a new advisor, you need to know exactly what you’re getting into.
Anyone making an investment should ask her advisor in advance if there are fees to open the account, make the investment (also known as a front-end load), withdraw the investment (also known as a deferred sales charge or DSC, backend load, or low load), or close the account, Andreana notes.
“People can change advisors, and sometimes what happens is if that advisor is also involved in the investing the investments would move with them,” Andreana says. “Often a new advisor would be reviewing current portfolio in accordance with client’s goals and plan and might make recommendations to change it or keep it as is. The first step we would take is to try and accommodate the funds, which means we would become the advisor on those exact same investments, avoiding any possible DSC fee. Once the funds move over we are then able to see exactly what the fees might be, if any, and make recommendations for the new portfolio based on this.”
There are several steps you can take to make sure the CFP you’re considering is someone you want to work with in the first place. It starts with meeting in person.
“The first face to face meeting we have with clients we call the “Is there a fit?” meeting,” Andreana says. “This meeting is specifically structured for the client to get to know us, and for us to get to know the clients. If it’s a couple, we want to meet them both. Everyone needs to be comfortable.”
To find out if you feel there’s a fit, some questions to ask a potential advisor include:
- What are your credentials and designations?
- Will you share your commission formula with me?
- Do you work on a fee for service basis if that’s what I prefer?
- Do you get paid based on the number of trades made in my account?
- Are you an independent advisor or do you sell investments from specific firms only?
- Will you prepare a written financial plan and update it annually?
Ask yourself if you trust the planner and if her investment philosophies match your own, Andreana suggests.
If you decide you want to go ahead, there’s still more to know.
“People considering working with a financial planner must be aware of what to expect and what their rights and responsibilities are,” says Robert Stammers, director of investor education at the CFA Institute. To that end, the CFA recently released a Statement of Investor Rights.
According to the statement, when engaging the services of financial professionals and organizations, people should expect, among other things:
- Honest, competent, and ethical conduct that complies with applicable law
- Independent and objective advice and assistance based on informed analysis and prudent judgment, with your financial interests taking precedence over those of the professional and the organization
- An explanation of all fees and costs and information showing these expense to be fair and reasonable, and
- The disclosure of any existing or potential conflicts of interest
The Statement of Investor Rights is part of an initiative called the Future of Finance, a “long-term global effort to shape a trustworthy, forward-thinking financial industry that better serves society”, according to the CFA Institute.
“The Statement of Investor Rights emphasizes the concept that the investor must always come first,” Stammers says.
And hopefully you won’t need to break up.
