If you do it right, your relationship with your financial advisor will be long and fruitful. Possibly more than anyone else outside your family, your financial advisor will come to know almost everything about you because your finances affect—and are affected by—many aspects of your life. This includes very personal information, like your health status, your family relationships, your personal goals, and so much more.
As you look for a financial advisor that you are comfortable working with, be ready to ask these five questions for financial advisors.
What is your approach to financial planning?
This question gets to the root right away. There are really three types of financial advisors: financial planners, investment managers, and salespeople. Generally speaking, you want an advisor who is a financial planner at heart.
Salespeople sell things. For example, many insurance agents sell insurance and annuities and hold themselves out as financial advisors. But they’re not really in business to advise on your entire financial life. Instead, they sell commission-based products.
Investment managers are focused on investments. They often come from the old stockbroker world. They may try to chase “hot” investments and pass that off as advice.
A financial planner takes a bigger picture approach than both salespeople and investment managers. Financial planning starts with asking questions about what’s important to you, what you want to accomplish, what’s your previous experience, and many other questions. It’s the idea of building a road map, knowing the starting point and the destination, and then filling in the map to get from Point A to Point B. Investments and insurance may be a part of that, but you can’t know that until you understand the big picture.
At Dominion Financial Advisors, our approach starts with financial planning.
Are you a fiduciary? Do you act as a fiduciary at all times?
If you’re dealing with a true financial planner, you very well may be dealing with a fiduciary advisor, which is exactly what you want.
A fiduciary must always act in your best interests, even when your best interests are not the same as his/her best interests. Fiduciaries have the duty to be loyal to you and to act with care, skill, prudence, and diligence.
It can be difficult for anyone who sells products to act in a fiduciary manner at all times. After all, they get paid a commission when they sell a product.
At Dominion Financial Advisors, we always act as a fiduciary. We are legally obligated to do so. And we think it’s the right thing to do.
Are you a fee-only advisor?
Fee-only advisors are paid only by their clients. They don’t receive any other compensation. They don’t get referral fees or kickbacks, and they don’t get paid by investment companies for steering their clients to certain investments.
Even better is when an advisor is paid only for their advice and/or investment management. This means you don’t have to pay commissions.
Dominion Financial Advisors is a fee-only firm.
How do you charge for your services?
Even for fee-only advisors, there are many different ways to charge for services. None of them is necessarily right or wrong, but it’s important that you understand how you will be charged so that you are not hit with unexpected charges in the future.
Here are some common ways advisors charge:
- Assets under management (AUM). Advisors who charge an AUM fee charge you based on the value of the investment assets that they manage for you. This is generally a percentage of the assets under management.
- Net worth under management (NWUM). These advisors charge not just based on the assets they manage directly, but on your entire net worth. The idea is that they are advising on your entire financial picture, so they should be paid based on the entire picture, not just the assets they manage directly. This is also based on a percentage.
- Flat fee. These advisors charge a one-time or recurring fixed fee that is not tied to assets or net worth or anything else.
- Hourly. This is straightforward: you pay for each hour the advisor works on your behalf.
- A mixture of these. At Dominion Financial Advisors, we charge a flat fee for financial planning and an AUM fee for clients who choose to have us manage their investments (we don’t require people to have us manage their investments). All fees are spelled out in your client agreement before we start working together.
Do you have to manage my investments?
Financial planners take two general approaches to investment management.
Advice-only planners do not manage investments. They provide advice on specific investments, but then have the client manage the investments themselves.
Other planners manage investments directly. They not only provide advice, but then also implement the investment recommendations and manage the portfolio directly.
At Dominion Financial Advisors, we let our clients choose whether they want us to manage investments. We don’t require it. Sustaining Planning clients can choose investment management as an add-on. Financial planning is the core of what we do, but if we can simplify your life by managing your investments, we’re happy to do it.
If you think our values align with your values, then schedule a consultation or contact us to find out how we can help you with financial planning and wealth management.