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10 Questions You Should Ask Before Hiring a Financial Advisor

Selecting the right personal financial advisor is one of the biggest decisions you will make in your career.  This person will help you with some of the most essential elements of your financial health; things like making smart decisions with your investments, planning for a secure retirement, and making appropriate financial decisions for your children and heirs.

Because there is such a wide gap between good and bad advisors, it’s important you do your due diligence before hiring one.  Hiring a financial advisor can help you become smarter and more prepared for the challenges you’ll face as a business owner.  But, selecting the wrong advisor can cause you to be left in the dark for decades and make decisions that will hurt you and your family’s ability to be self-reliant and independent.

The right advisor provides unbiased education, unparalleled insight into your career and finances, and the confidence to make tough decisions during difficult times.  The wrong advisor uses manipulative sales practices, hidden fees, and casts a cloud of doubt over your future.

It’s a crucial decision, which is why I’ve prepared a list of key questions to help you narrow down the good from the bad and make an informed decision about who you’ll want to hire.

Question #1: Would you describe the types of clients you work with?

As a dentist, it’s very important to select an advisor who understands your unique career and all its challenges.  The best financial advisors have the experience to anticipate problems you will likely experience in the future, not just the problems currently on your mind.  This context is invaluable.

Many financial advisors you meet will have experience in subjects that apply generally to all individuals.  These areas include:  investments, insurance, personal budgeting, etc.  While these are important, your advisor should also have a keen understanding of major financial issues dentists face in particular such as:  equipment and real estate financing, practice transitions, profitability analysis, income tax budgeting, corporate and personal retirement plans, disability insurance, and liability protection.

If the prospective advisor hasn’t worked with multiple dentists and specialists at different phases throughout their career, you may not be in the best hands.  Specialized advisors are able to provide many value-added services and advice and help prepare you to manage challenges you’ve yet to face and may not understand.

Question #2: How exactly are you compensated?

Some advisors are paid fees, others are paid commission, and some get paid both.  We recommend dentists work with a fee-based or fee-only advisor.  We believe the best advice comes from independent advisors who are not employed by a company that designs and sells financial products.  In other words, keep an eye out for advisors who are paid mainly from selling products, especially when the large majority of their compensation is coming from a single product or vendor.

Question #3: What are your services?

If the advisor is offering to help you reach your financial goals, find out more about the process they follow to help their clients.  Is the service a la carte or comprehensive?  How much time do they anticipate spending with you each year?  How do they quantify the progress you are making?  What kind of reporting should you expect?  What financial subjects do they address in their client engagements?  As a dentist, you will likely want an advisor who understands both personal and practice financial concerns.

Question #4: What is your investment philosophy and methodology?

Ask the prospective advisor to explain the process of growing and protecting your investments.  What academic research and professional research has influenced the advisor’s philosophy? (Beware of advisors who claim to be exclusively relying upon proprietary models).  What types of investments does the advisor recommend, and where will your money be held?  Does the advisor rely upon his investment research internally, or does he employ outside research partners to help complete due diligence on investment portfolios?  What reasons would cause the advisor to change the investment methodology?  What did the advisor’s portfolio look like before, during, and after the financial crisis in 2008?

Question #5: What happens to me if something happens to you?

If an advisor were to be involved in an accident and was unable to perform his or her duties, who would continue to service you?  How much of the advice is documented into a system or format that can be easily understood by the succeeding advisor?  Good financial advisors have a process in place for easily transferring all your information, recommendations, and financial planning goals and objectives.

Question #6: What is your educational background?

Advisors often pursue many different professional credentials.  Some credentials have rigorous, graduate-level testing requirements that set advisors apart from their peers in a meaningful way. Unfortunately, many credentials are nothing more than a weekend crash course that grants a fancy title.  There are some credentials I respect in the industry for their overall rigor, time commitment, and ethical standards (CFP®, CFA®, CIMA®, ChFC).  If I were looking to hire a financial planner with broad experience, the CFP® would be the most meaningful credential to me.  If I were looking to hire an investment advisor or money manager, the CFA® credential would be the most meaningful to me.  You might find the Wall Street Journal’s perspective on professional credentials to be useful.

Question #7: Would you be willing to share exactly what you do with your own financial planning, insurance, and investments?

Don’t settle for broad, high-level discussion.  Make sure you ask exactly what type of retirement planning, insurance products, and investments the advisor uses personally.  A good financial advisor eats his own pudding and isn’t afraid to share details.

Question #8: How many clients do you work with?

When you hire an advisor, you should know how many clients they service.  Different advisors will be able to handle different numbers of clients based on the complexity and comprehensiveness of their services.  For example, someone who is simply selling investments will be able to handle a lot more clients than an advisor who is proactively meeting with his clients on a regular basis to complete a review of their entire financial picture.  While there isn’t a magic number that makes an advisor effective or ineffective, we recommend finding someone who will be highly motivated to focus on you and your practice.  The fewer clients an advisor manages, the more time he has available for each individual.

Question #9: Are you a fiduciary?

A fiduciary is a fancy word for an advisor who is legally bound to put client interests before his own.  Strange as it may seem, many advisors are not legally bound to operate under the fiduciary standard.  Such advisors have licenses that only require them to follow the “suitability standard”.  In other words, some of the recommendations they might make would not be in your best interest.

We recommend using a Registered Investment Advisor (RIA) because these individuals have a fiduciary duty to act in your best interest, and they are legally bound to invest funds accordingly. Stockbrokers and insurance agents do not have this higher fiduciary duty.  Investment advisors held to the higher fiduciary standard must select or recommend the best product for your situation, whereas brokers only have to recommend a product that meets your suitability requirements.

Question #10: Why did you decide to enter this occupation?

This is your opportunity to gauge the character and values of your advisor.  In our view, it’s important that any professional advisor have a passion for serving their clients and helping them meet their goals.  Effective advisors will often go above and beyond expectations to ensure the financial success of their clients, simply because it’s what drives them.

In Conclusion

Dentists need good financial advisors who they know they can trust.  Today’s financial landscape is exciting and complex.  Your advisor will either become a great asset or liability to your business, and we want to make sure you are getting the financial advice you deserve.  Consider these questions and always remember to inquire before you hire.


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