Preparing for your first sit-down with a financial planner can be more than a little intimidating. After all, a good planner covers a lot of terrain, from analyzing your investment portfolio, estate plan and health care costs, to helping you figure out how to fund college or retirement accounts, to making sure you’ve got a healthy day-to-day budget in place. Chances are he or she may be the only professional who takes in your whole financial picture — with both a wide-angle and a zoom lens.
Experts agree that finding the right fit between you and your financial planner is the key to making the relationship worth your while. To that end, most of us concentrate on what we should ask a potential adviser during the initial consultation. Many people don’t realize that a good financial planner should also be asking you at least five questions at the first meeting.
1. What is it you hope to accomplish by visiting a financial planner?
A good financial planner needs to know exactly what you want from the relationship, explained Lauren Locker, chairwoman of the National Association of Personal Financial Advisors (napfa.org).
“Are you trying to save for your kids’ college and a house?” Locker said. “Are you here because you’re worried about retirement? Do you need guidance with respect to insurance issues? You might need a whole financial plan — and you might only need a few hours. It all depends on what you are looking for and why you’ve decided to meet with someone.”
According to Locker, financial planning is a lot like a cooking recipe. You start with your goals and what you hope to achieve financially (imagine trying to bake something without really knowing what you’re trying to make in the first place). Then, she said, a good planner will add in your current investments to see how far they’ll take you into the future, and sprinkle in your estate planning, taxes, lifestyle issues — whatever else you want help with — on top.
2. What is your current income and do you expect any changes to it?
Many planners will ask about your total current assets, said Manisha Thakor, founder and CEO of MoneyZen Wealth Management, and author of “Get Financially Naked” (moneyzen.com/books/get-financially-naked), a guide to financial happiness and success for married couples.
But your optimal investment strategy is also closely linked to the kind of income stream you have coming in and what you expect to earn down the road — not just what you own today, Thakor explained.
For example, a tenured professor with steady, reliable cash flow can take on more overall investment risk than an architect who may have more unpredictable earnings. By the same token, someone who might appear to be a hefty earner now may have plans to retire early and therefore may not have a fat paycheck coming in over the long term.
“Over the years, I’ve seen far too many examples of individuals who were put in inappropriate investment vehicles,” Thakor said. “Their advisers didn’t have a full understanding of their income stability or lack thereof.”
3. Do you have a formalized household budget?
Financial planners provide a structured environment in which you can carefully analyze your net worth and your spending habits, as well as your personal values regarding money.
But at the end of the day, it’s impossible for a financial planner to advise a client to, for example, put $300 a month into his or her retirement fund or a 529 account if the planner doesn’t have a clear sense of the client's budgetary constraints.
And if you have no formal budget, that needs to be the first order of business — or there’s really no way to help you achieve any of your specific financial goals.
Matt Hall, principal and co-founder of Hill Investment Group (hillinvestmentgroup.com) in St. Louis, tries to get a clear picture of the families he works with by asking potential clients: “Do you have a plan? Do you know your returns over the past few years? What life insurance do you have? What are your biggest financial challenges?”
4. How involved would you like to be in the process?
Eleanor Blayney, the consumer advocate for the Board of Certified Financial Planners, says that, unfortunately, some advisers fail to ask clients about their expectations and preferences regarding the whole investment and financial planning process.
She encourages all planners to ask their clients: When is the best time and what’s the best way to contact you? The financial services industry has a history of quarterly communication through a document called the “quarterly client letter” and a multipage portfolio analysis (which many clients say they just don’t read). But it’s important for a financial adviser to communicate and involve you on the schedule that you want (and by email and phone if you prefer).
And if the client is a couple, Blayney said via email, a financial planner should always be sure to ask how each individual would like to be involved in the financial planning process — and not assume both members of the couple feel the same way.
5. Do you understand and feel comfortable with the fees you will pay for my services?
Good financial planners can have different fee structures. Some advisers get paid a percentage of assets under management. Others may charge an hourly rate or receive commissions for financial products that they sell you and some may use a combination of these arrangements.
But when it comes to fees, there is one golden rule: transparency and disclosure, said Manisha Thakor.
“There is so much opacity around fees in the industry,” she explained. “My gut rule of thumb: If an adviser can’t look you right in the eye and speak calmly and clearly about their fee structure, think long and hard about whether you want to work with them.”