Rachel Cruze, a money expert, says it is important to ask the right questions when choosing financial advisors. She suggests asking real estate agents about how many homes they sold last year, their schedule and availability, and their commission. For tax professionals, Cruze recommends asking about how many clients they manage, their experience with complicated finances, and how often they recommend meeting.
When it comes to investing professionals, she advises asking about how they are compensated, if they understand and honor your goals, and the range of income and assets for their clients. Pam Krueger, founder and CEO of Wealthramp, talks about the differences between fee-only financial advisors and commission-based advisors. Fee-only advisors charge fees directly to clients for their services and work only for clients.
This reduces conflicts of interest. Commission-based advisors earn money by selling financial products. Krueger also emphasizes the importance of the fiduciary standard.
This legally requires advisors to act in their clients’ best interests.
Questions to ask financial advisors
This is different from the suitability standard for brokers.
With the suitability standard, recommendations must generally suit the client but may not align with their best financial interests. New research from Cerulli Associates shows a disconnect between the satisfaction levels of clients who use financial advisors and the concerns of potential clients about cost transparency. The report shows that 55% of advisors consider recruiting new clients to be their biggest challenge.
Despite this, satisfaction among existing clients remains high. 80% of current RIA clients are satisfied with their advisors. However, satisfaction varies based on the clients’ investable assets.
Those in the $100,000 to $250,000 range have the lowest satisfaction rate at 70%. The study suggests that advisors need to improve their transparency and communication strategies. This could help attract prospective clients and address their concerns about costs and services.
It could also help bridge the gap between the current satisfaction levels of advised clients and the skepticism of those yet to seek financial advice.
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