By LILIYA JONES
Money permeates every facet of our lives. So, it makes sense that when investors are looking to hire someone for financial advice that they take it seriously. To help you get ready to field the tough questions from clients, here are four questions you should be ready and able to answer for potential clients:
- Are you a fiduciary?
With the growing push to eliminate conflicts of interest in the financial services industry, potential clients could ask if you are the type of advisor who will act in their best interest. If the client does not ask – tell them. Clarify whether you follow a suitability standard or a fiduciary standard. Be transparent. This touch of honesty could help you earn their trust and maybe their business.
- Are you a fee-only advisor?
Or, you might be asked, how are you compensated? If you are a fee-only advisor, explain that you can be paid only by your clients because you work only for the clients. Also explain that your firm does not receive any commissions or compensation from industry partners, allied professionals or vendors.
If your business operates under the fee-based model, explain the difference between fee-based and fee-only businesses to your clients. For an outsider, the subtle difference in words can be confusing despite their being a big difference in how these firms conduct business.
Lastly, explain the difference between commission and fee- based models. A large portion of the industry is still compensated primarily by commission. So, even if the potential client is speaking to you, they may have already met with or plan to meet with other advisors or brokers working under commission models. Make sure they understand the differences between broker/dealers and financial planners and in their business models.
- What is your investment philosophy?
Every investor wants to capture the returns the market provides. So, be upfront about your asset management style. Are you an active investment manager or a passive manager? After all, the fees clients may pay decreases the returns they keep it makes sense that investors will want to know what fees to expect, especially when the difference between various investment vehicles can be huge – from as low as .04% for some index funds to almost 2% for some actively-managed mutual funds.
Investors might follow this question up with: do you offer values-based investing? It’s true that offerings in this area were slim for a long time, but in recent years the field has really exploded and there is no longer any excuse for refusing to provide this option for your clients. Between platforms dedicated to niche impact and/or sustainable investing and ESG-screened index funds provided by big investment firms, you should be able to find a solution that works for investors if this is something that potential clients find important.
- What are the core values of your business?
Money is power. So don’t forget that potential clients might want to put their dollars to work. By asking this question, potential clients can learn about how thoughtful you and your practice is or is not. Even if you offer values-based investing options, investors could be curious about how you and your practice live your values. Do you pay a living wage to your employees? Do you have a diverse leadership team? Do you keep an eye on your environmental footprint?
Armed with these questions, potential clients are in control of their quest for the perfect financial advisor. Be prepared to answer these questions and see where the discussion leads.