5 Questions to Ask Your Financial Advisor | Phil Town

TL;DR

Ask whether a financial advisor is a financial planner or licensed investment advisor, whether they are a fiduciary, how they are paid, what qualifications they have, and how the working relationship will operate. Phil Town favors fee-only advisors paid based on assets under management and says investment advisors must hold a Series 65 license. Read on to understand why each question matters and what to listen for.

Transcript

hey guys i'm phil town from real one investing and today i want to talk to you about the questions you absolutely have to ask your financial advisor so first off you guys already know that not all financial advisors have your best interest in mind right i mean that's just reality and this is why it's so important to ask the right questions if you'r... Read More

Key Insights

• ❓ Differentiate between financial planners and investment advisors as they require different licenses.
• ❓ Fiduciary advisors prioritize their clients' interests over their own.
• 🤱 Fee-only advisors who are compensated based on assets under management are recommended.
• ⌛ Evaluate a financial advisor's qualifications and invest time in understanding their expertise.
• 🔰 Be aware that most financial advisors may not provide valuable advice, particularly for beginners.
• ❓ Learning to manage your finances and investments independently is crucial for financial independence.
• 🤑 Consider attending a workshop or seeking education to gain confidence in managing your own money.

Questions & Answers

Q: What five questions should I ask a financial advisor?

Ask whether the person is a financial planner or investment advisor, whether they are a fiduciary, how they charge, what qualifications they have, and how the working relationship will operate. These questions reveal their licensing, obligations, incentives, expertise, and communication approach.

Q: What is the difference between a financial planner and an investment advisor?

A financial planner examines all aspects of a client’s financial life and may have a certification, but is not required to be licensed. According to Phil Town, an investment advisor is regulated by their state and the SEC and must hold a Series 65 license.

Q: Why should I ask whether a financial advisor is a fiduciary?

A fiduciary must put the client’s interests ahead of their own when advising on a portfolio. Phil Town says commission earners are not held to that same fiduciary standard, which can create different incentives when they recommend products.

Q: How do financial advisors charge for their services?

Fee-only advisors receive fees for services and no commissions. Fee-based advisors can receive both service fees and commissions, while commission-based advisors earn commissions for recommending products.

Q: What type of financial advisor compensation does Phil Town prefer?

Phil Town favors fee-only advisors. He particularly likes advisors who charge a standard fee based on the client’s assets under management.

Q: How should I evaluate a financial advisor’s qualifications?

Do not rely only on the initials listed after an advisor’s name, because Phil Town says some credentials mean much more than others. Determine whether the advisor is genuinely capable of providing investment advice, rather than merely recommending broad diversification.

Q: What should I ask about the advisor-client working relationship?

Ask how you will work together, how meetings will occur, and which communication method the advisor prefers. Phil Town specifically mentions possibilities such as Zoom, online communication, or visits to the client’s home.

Q: Does Phil Town think beginners need a financial advisor?

He says advisors can offer benefits, particularly when a client is already wealthy. For many people who are just starting, however, he argues that the available advisor could be replaced by a robo-advisor or computer using answers to about seven questions.

Summary & Key Takeaways

• It is crucial to ask the right questions when working with a financial advisor because not all advisors prioritize the client's best interests.

• Differentiate between financial planners and investment advisors, as they have distinct certifications and licensing requirements.

• Determine if the advisor is a fiduciary, as they are held to a higher standard and must prioritize their clients' interests.