Ask a Financial Advisor the Right Questions

This week, I heard from a Navy retiree, who wondered what he should do with the stockpile of cash he built up in his Thrift Savings Plan, the federal government retirement plan that looks a lot like a 401(k).

My recent blogs on finding a financial planner was fortuitous because he has been grappling with the sort of daunting decisions that face nearly anyone who retires. He and his wife are eager to find a trusted advisor who can answer questions like this one: Should they keep the money tucked inside his TSP, where it’s invested conservatively, or move it to an Individual Retirement Account?

In his quest for answers, the couple consulted with a financial professional, who is affiliated with their local credit union. To his credit, the retiree grilled the guy on whether he was a fiduciary. The adviser assured him that he was indeed a fiduciary. Our Mr. Fiduciary, however, urged the retiree to dump his TSP, which is a fabulous plan that contains super inexpensive index funds, and move the cash into a horribly expensive variable annuity inside an IRA. It would be tough to imagine more asinine advice.

The retiree’s experience illustrates what even the most earnest investors are up against when they hunt for an advisor, who seems imbued with a higher financial power. The Naval civil servant has been an Eagle Scout of an investor. He wisely maxed out his retirement plan since day one, but now faced with one of the biggest financial decisions of his life, he wasn’t sure whether he should seal the deal with this annuity peddler, who obviously had gotten the memo: If someone asks, by golly you’re a fiduciary.

How do you know if your advisor or a prospective candidate is really working in your best interest? One way to root out the impostors is to use a detailed questionnaire when talking with these guys. And don’t worry, I’m not suggesting that you dream up your own questions.

You can find an excellent questionnaire, entitled, NAPFA’s Financial Planning Diagnostic, by visiting the web site of the National Association of Personal Financial Advisors. At the same time, you’ll need to print out the companion document, The NAPFA Comprehensive Financial Planning Checklist. Often times, prospective advisors will provide a complimentary session where you get a feel for whether you’d be comfortable with the person sitting behind the desk. Take advantage of this opportunity and don’t forget to bring the questionnaire.

Another way to reduce your chances of getting a bozo is to hunt for a fee-only advisor. I’m certainly not suggesting that all fee-only planners are fantastic, but I believe you eliminate a lot of potential conflicts of interests if you stick with them. A splendid watering hole for these professionals is the National Association of Personal Financial Advisors. All it’s members sign a fiduciary oath to their clients and they are scrupulous about only charging fees.

A potential drawback about seeking advice through fee-only professionals, however, is they might not want your business. Many of these advisors prefer working with high-net-worth individuals if they charge a fee that’s based on the value of the client’s portfolio. If you don’t have investable assets in the mid to high-six figures or more, they might turn you away. If you keep hunting, however, you should be able to find someone regardless of your net worth. In San Diego County, for instance, there are quite a few NAPFA members who will work with middle-income folks. Some of these NAPFA members, who charge by the hour, are affiliated with Garrett Planning Network, which includes hourly planners across the country. You can visit Garrett’s web site to find names.

Dimensional Fund Advisors, which is a highly respected mutual fund company in Santa Monica, CA., provides another excellent way to locate fee-only advisors. If I ever decided to use an advisor personally, I’d limit my search to someone who invests with DFA funds, which are index-like mutual funds. DFA funds are only available to individuals who invest through certain fee-only advisors. You can learn more about the academics behind DFA and request names of advisors, who rely upon these exclusive funds, by visiting the firm’s web site at

The Financial Planning Association represents another source for advisors, but you need to be aware that plenty of the members charge commissions. If you visit the FPA’s web site, you can obtain a list of advisors in your area. When I typed in my zip code and specified that I wanted someone who does comprehensive financial planning, I found 78 advisors within a 20-mile radius. What’s nice about the NAPFA and FPA sites is they provide background on each professional, as well as email and other contact information. To narrow your search more easily, you can email prospects questions before you ever have to pick up the phone.

Another great source to find committed fiduciaries, who don’t just talk the talk, is the Center for Fiduciary Studies, which is an organization founded by Don Trone, who is probably the planet’s most knowledgeable and passionate fiduciary advocate. Investment advisors and other professionals, who take classes through the center, receive one of two designations, the Accredited Investment Fiduciary and the Accredited Investment Fiduciary Analyst. The AIF program was developed to help investment advisors to incorporate fiduciary practices in their own firms, while the more involved AIFA designation typically interests those who want to evaluate other professionals’ practices. On the center’s home page, you’ll find an icon that says Search for an AIF/AIFA professional. To find prospects, type in your state and/or city.

If you aren’t interested in hiring an individual investment advisor, there’s another way to proceed. Some discount brokerage firms and mutual fund companies, such as the Vanguard Group and T. Rowe Price, provide guidance via the phone and the Internet for a modest fee. And in many cases, the advice will be free if you move assets to their firm. T. Rowe Price, for instance, charges just $250 to develop a game plan for a retiree or someone on the verge of that milestone.

One more piece of advice, before I send you off on your advisor hunt. Don’t limit your search to someone who lives nearby. I often get email from people who want to know of a great advisor in their neighborhood. The perfect match, however, may be 25 or 30 miles away. If so, it will be worth the drive.

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