Finding a trustworthy financial advisor can be a tricky process. According to an AARP article, “More than 400,000 people in the U.S. call themselves financial advisers today, using any number of so-called professional designations to sell financial products and give advice. Some of these credentials – there are 157 out there – don’t require much training or expertise, or a code of ethics.”1 Below are some key questions you should ask when interviewing a potential candidate.
Suitability Vs Fiduciary
Financial advisors can act in either a suitability or fiduciary capacity. So what is the difference?
The suitability standard means that advisors are able to sell you products that are suitable based on your age, risk tolerance and other factors. However, the product may not meet your needs. These products can come with high fees or commissions that don’t have to be disclosed. You should be aware that many brokers and others, who call themselves advisors, may follow the suitability standard.
The fiduciary standard means that the advisor is required to put your interests first. Although this is not a guarantee of the advisor’s ability, it can be your first line of defense when it comes to receiving unbiased advice.
If you ask your prospective advisor which standard they observe, suitability or fiduciary, they should be able to provide you with a clear answer and explanation. If they can’t, or they hesitate, it’s probably best to walk away.1
Do Your Research
When looking for a financial advisor, confirm their credentials and check to ensure they don’t have any disciplinary actions against them. This information is publicly available. For example, the Commodity Futures Trading Commission has bundled all the major industry regulators together on one site to make it easier for consumers to do background checks. The website address is www.smartcheck.cftc.gov. It’s important to note that brokers are often able to get negative marks removed from their records. Therefore, you should also check state regulator websites if you’re considering an advisor that sells insurance products such as annuities.1
Fees
Ask your potential advisor how they’re compensated – on an hourly basis, by commission or as a percentage of assets under management. If it’s on a percentage basis, fees should be under 1% annually, in addition to any mutual fund fees.1
Beware of Performance Promises
Many advisors will tout their past returns, however past performance does not guarantee future results. If your advisor promises returns that are significantly better than the market average, it’s probably unrealistic.1
Get It in Writing
Your advisor should be able to clearly explain their recommendations, and should be able provide those recommendations to you in writing.1
Once you find an advisor you feel comfortable with, it’s a good idea to discuss both your short and long term goals to ensure you’re on the right track. If you’re looking for a way to supplement your retirement income, you may want to talk to your financial advisor about a reverse mortgage. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan. A HECM enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3
If you’d like to learn more about reverse mortgages and see if you’re eligible, please use our Reverse Mortgage Calculator or call 800-218-1415.
1 How to Get the Best Financial Advice – aarp.org, by Carole Fleck, April 2015, http://www.aarp.org/money/investing/info-2015/best-retirement-financial-advice.html?intcmp=HP-FLXSLDR-SLIDE6-RL1.
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
Author: Meredith Manz