Bridget Sullivan Mermel CFP(R) CPA
3 Questions to Ask when Finding a Financial Advisor
Updated: Dec 18, 2021
When you look for a financial advisor, there are three questions you absolutely must ask.
Finding a financial advisor can be difficult. They all sound the same. They care about their clients and about helping people achieve their goals by making smart investments. How can a normal person make a smart choice when hiring financial planner? Bridget and John share three key questions to ask to put you in the driver’s seat:
1 - Are you a fiduciary? Fiduciary is legal jargon, but it’s an effective word to use when you interview financial advisors. Simply put, being a fiduciary means that an advisor is legally required to act in clients’ best interests. That might sound overly simple, but most people don’t know that in general financial advisors are NOT required to act in clients’ best interests (thanks, Wall Street – way to look out for regular people!).
Most financial professionals represent brokerage firms (yes, even the ones who are ‘independent’ and can pick from any investment option.) As a brokerage rep, they specifically are not required to act in your best interests. Some insurance professionals are required to act in the best interest of the insurance company they represent, not to you.
2 - Do you advise on more than investments? Investment advice is important to be sure, but other planning topics are at least as important in your financial success.
3 - Do you give specific tax advice? This takes #2 farther and is really a big – and perhaps the key – question. One of the largest expenses that most people have each year is the amount they pay in taxes.
Regular financial advisors say that they do ‘tax planning’ and ‘focus on reducing taxes’…but what that generally means is that they offer investments that have some tax advantages. Pay close attention to the fine print of their ads and documents, look for the words ‘consult your tax advisor’. If you see that, it means that they don’t take responsibility for any tax advice and aren’t allowed to give real-life, specific tax advice on what you should do.
Then Bridget shares one bonus tip - pay close attention at the 7:00 minute mark to learn the question that can really confirm who is the best advisor for you.
Learn more about Bridget and her firm at www.sullivanmermel.com.
Learn more about John and his firm visit www.trinfin.com.
To learn more about comprehensive, tax-focused financial planning and to find an advisor near you visit the Alliance of Comprehensive Planners at www.acplanners.org.
Remember to hit that subscribe button to stay up to date on future episodes, which also helps others find this great content. Thanks for watching!
John: How do you go about finding a financial advisor? That is such a hard question. And today on this episode of Friends Talk Financial Planning, we are going to give you three key questions to make sure you ask for every adviser you interview, and also make sure you stick around for the end where we've got one bonus tip that's maybe the most important question of all. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel. And I've got a fee-only financial planning practice in Chicago, Illinois. And, John, before we get into our first tip, I just want to remind people to subscribe. If you subscribe to our channel, it really helps us out. So our first tip in what to ask financial advisors when you're trying to find one is: Are you a fiduciary? Now, sometimes people think fiduciary sounds like something…
John: That's a big word.
Bridget: …they don't want. But in finances it's something that you do want. So, what a fiduciary means is they put your--in common terms--is that they put your interest ahead of their own. So that means that they're giving you advice, even if it's to their own detriment. So they're putting your advice first. So finding a fiduciary, somebody who puts your interest ahead of their own, is my number one question. And it's a big topic in the industry right now.
John: I was just going to say, Bridget, it is that kind of 50 cent word, like fiduciary, and it's an important term to use because it has a specific…it's actually worth using the jargon when you're interviewing advisors.
John: And my experience is that most people would think, “Well don’t all advisors act in clients best interests?” You'd think that everybody from the big brokerage firms… And the answer is no, right? It really isn't. That's a specific thing, and the ads you see on TV, and “Don't we take care of you?” and all this sort of thing, and “We care about our clients” that doesn't translate into this fiduciary idea. So it's really an important one. That's my number one topic as well.
Bridget: Right. And people...the other things that they can do is they might have a standard that's like, "I'm reasonable."
Bridget: "I'm reasonable," which that sounds okay if you don't know what the other options are, but putting my own interest, your interest ahead of my own is a much higher standard. And so for us, it's like, what standard of care do you really offer your clients? And that is the number one thing to look for. Okay, John, your next step is interesting. Go ahead.
John: I was just going to say that one of the other things that I talk with people about is asking the advisor, "Do you advise on more than just investments and taking that holistic approach?" I know that's something that you really focus on when you're talking with people about how to hire a financial advisor.
Bridget: Right. It's like being comprehensive or holistic. I don't use the word holistic that much because I think it makes a lot of people think of, like, whole wheat bread that sounds good for them, but they don’t really want to eat. But somebody who thinks about more than just investments is going to be important overall, because the investments are an important part of your finances as you're going along, but there are so many other things that really play in and you really want somebody who is thinking about those things as well and not just totally focused on your investments.
John: Can you give some examples? I know I've got some on my part. What examples of other things non-investment related should people be expecting to hear from the advisor?
Bridget: So, for instance, one of the things that I've been talking to clients about now, and we've talked about on this show, is it's a good time to refinance. Okay. So that's not investments, and it's complicated and you have to know something about it to be able to talk about it.
And a lot of times I think that the advisors who might be talking about it are the advisors who might actually take care of it for you, the people who will actually make some money on refinancing. So again, it's like to put the client’s kind of broader scope of interest in mind. I think that's just one example of right now what I'm talking to clients about and the type of outside of just investments that I think is important.
John: I'll give one other example on that, too, Bridget, is at this time of year in the fall is oftentimes it's time to sign up for benefits for next year through work. What type of health insurance plan should I select?
And should I do the HSA option versus other and those sort of things in the brokerage houses that there's nothing to sell. But are you going to be able to advise me on specifically which health insurance option I should choose and which disability insurance I should pick? Those sorts of things are, again, those non-investment things that, golly, are really important with folks. Go ahead.
Bridget: No, go ahead.
John: I was just going to say that one other thing as sort of a subset of “Do you give advice on topics other than just investments?” that's a really specific one, though, that I think is a really important one to ask is: Will you give me specific tax advice?
John: And in that investment world, the financial advisors and everybody says, “Oh, we do tax focused planning. We plan for taxes.” And don't take that one at face value. I guess that's my advice is ask, “Will you give specific tax advice?” Because taxes are the largest or one of the largest line items in everybody's budget. What goes to Uncle Sam? What goes to your state?
And what most folks are looking for, what I'd be looking for, is saying, “Listen, how do I reduce my taxes? How do I manage it effectively?” And when you take a look at…so it catches my eye when I see advertisements or look at people's websites, “We do tax planning.” It's interesting and then scroll down to the very bottom. Get down in that little fine print. And in 99% of the cases, it'll say, “Consult your tax adviser on specific strategies.” Wait a minute. You're giving me tax advice, but then I've got to consult my tax...like, who's my tax adviser? That's what we're looking for is actual tax advice.
So, to ask that question, "Will you give me specific tax advice?" And in many cases at these bigger firms, the brokerage houses, they're not allowed to. That's really what I think most people are looking for. So that's the other sort of subset is ask about specific tax advice that can really go a long way.
Bridget: Yeah. So to consolidate this. First is fiduciary. Second is, "Are you comprehensive, or do you advise on more than just investments if I've got other questions?" Third is, "Do you coordinate taxes in your advice?" And now, here's our bonus question. And that is the back up on the fiduciary, looking for a fiduciary, we really recommend, in the industry jargon it's called fee-only.
Now, fee-only means that, again, it's a higher standard than just fiduciary, because in the industry people understand that consumers have gotten wise and they're looking for fiduciaries. They started parsing it out and saying like, “Oh, I can be a fiduciary when I'm doing this task and not doing that task.” So the more people can say they're fiduciary, then, in my opinion, are really putting clients interest always ahead of their own. So when you look at the fee-only, it's a higher standard than just fiduciary, and so I really recommend that people look at fee-only, for fee-only.
John: The place that I see a lot of that, Bridget, is especially on the insurance side. So, if advisors that work with insurance, either for an insurance company or they're independent but they sell insurance, is, what I'll hear is, "We're fiduciaries.” And I can see it on the website, “We act as fiduciaries.” And then metaphorically, not in actual parentheses, but "when we're giving investment advice."
But then on the insurance side, when I put my insurance hat on, yes, then I'm a broker and I'm selling things. And from a client standpoint, you go, “Wait a minute. Wouldn't I want to have somebody be a fiduciary at all the time when you're giving investment advice or insurance advice, not just on the one side.” So that “Are you fee-only?” sort of translates into, “Are you a fiduciary all the time or just some of the time?” That's such a great question.
Bridget: Right. And fee-only advisers should be upfront about their fees.
John: That's right.
Bridget: They should never say, “I don't know what my fees are.” Fee-only is upfront about their fees, too. So you'll understand exactly how you're paying people.
John: That's great. What a great place to wrap up with that. Thanks again for watching. I'll remind everybody to subscribe. That helps other people find this content and helps promote our show. And the other thing is that Bridget and I are members of the Alliance of Comprehensive Planners. And if you'd like to find an adviser in your areas that has a similar holistic view on things and talks about things like this. Visit their website at acplanners.org.
Bridget: Thanks, John!
John: Yeah. Thanks, Bridget!
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.