Interview Question #8: If something happens to you, what happens to me?
I’m not talking here about your adviser getting hit by a bus or running screaming from the office never to return (although I’ll get to those scenarios in a moment). No, I’m just wondering what happens if you need help while your adviser is out sick or on vacation.
Sure, cell phones and email help a lot in ensuring that your adviser is never far away. But what if he’s on an airplane or hiking down some canyon out of cell range?
Ask the candidate how he handles occasions when he’s out of the office. This can be a real problem if your adviser is a solo practitioner who works part-time (as many insurance agents do) or without any assistants (common for many brokers and agents).
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It’s common for advisers in larger firms to buddy up, covering for each other when one is away. Find out if the adviser you’re interviewing has such an arrangement, but don’t stop there. It’s one thing to know that someone else will answer the phone or respond to an email, they need to be able to do more than merely say, “Harvey will be back on Thursday.”
You want to verify that Harvey’s buddy is able to actually help you. That means he has the ability — and authority — to handle transactions (especially liquidations, because if you need cash quick, you want to know that you can get it, even if Harvey is away).
And if you need advice — say you have to make a financial decision and there’s a deadline that can’t wait — is that buddy familiar with your financial situation, or is he just some broker or insurance agent in the office who was forced into taking other’s phone calls?
Ideally, you want to know that if your adviser is away, there are others in the firm who are very familiar with the investments and insurance you own, and who can talk with you knowledgeably and offer advice just like your adviser could.
I’m talking here about depth of talent, and it’s of tremendous importance when hiring an adviser. Don’t let your financial future be dependent on the advice — or sheer availability — of just one person.
Of course, the above describes the inconvenience of having an adviser away on vacation or out sick. But what happens to you and your account if your adviser quits, retires, or dies?
I’m talking about a succession plan. Does your adviser have one? Most don’t, despite the fact that one of those events is eventually going to occur. So ask the candidate how long he plans to continue in this field and what will happen to your account if he sells his practice, quits the firm, or leaves due to death or disability.
Are there others in the firm who can take over with minimal disruption to you? Sure, you’ll have to get to know the successor, but you’d have to do that anyway if your adviser departure forced you to find another adviser.
And if you are forced to start over, you may find yourself having to transfer accounts, sell assets, and buy new ones, resulting in fees or taxes.
Talented advisers realize they have an obligation to ensure that their clients will be cared for after they are gone and they have succession plans in place to assure continuity of services.
Make sure your adviser has a plan in place. And learn its details. Don’t merely let a prospective adviser say, “Yes, I have a plan.” Make him describe it, so you can decide if it’s well thought out and realistic.
What is the name of the person who he expects will take over? What will be the transition process? Make sure you are comfortable with these answers. And if you’re not, make sure you’re comfortable with the idea of having to find a new advisor if this one dies, quits, or retires.
Interview Question #9: Do you personally own the same investment and insurance products you’ll be recommending to me?
I’ve learned over the years that a great many brokers, agents, and advisors never personally invest in the products they tell their clients to buy.
It’s reasonable to assume there might be some differences in what your advisor buys for his own account compared to what he recommends for you — his personal situation might be quite different from yours, after all — but if he’s telling you to invest your life’s savings in annuities and he doesn’t own any of them himself, or if he’s recommending a third-party manager but he hasn’t placed his own money with that manager, well, you just have to ask yourself a question: If he doesn’t buy what he’s selling to you, are you sure you want to buy it?
Put another way, would you dine at a restaurant whose chef refused to eat there?
Interview Question #10: What kind of people do you usually work with?
Do not tell the candidates about yourself right away. Instead, ask them to describe their typical clients. If they describe you, it could be a good match. If they describe someone quite different, you could be out of place. As part of this question, ask how much money their typical clients invest.
If you have $50,000 to invest, you don’t want an advisor who works primarily with millionaires, or you’ll probably be ignored. Likewise, if you have $1 million and the advisor works mostly with assets of fifty grand, the advisor may not have the expertise you require.
Ideally, you want an advisor who has extensive experience working with people just like you. Never be a surgeon’s first patient. And never let a podiatrist operate on your spleen.
Interview Question #11: How long have you been in this business?
Don’t assume that age translates to experience. A great many stockbrokers, insurance agents, and investment advisors are career-changers, and their gray hair belies the fact that they’ve been in the field only a year or two.
Interview Question #12: What is your ratio of support staff to professional staff?
If the advisor works alone or has only limited access to support staff, then you’re paying for your advisor to lick envelopes. You want an advisor who operates in a professional environment, not a solo practitioner who must do everything himself.
An effective office operation will have no less than one support staff member for every professional.
Interview Question #13: Do you conduct background checks of your staff?
It’s obvious that your advisor will be in possession of your date of birth, Social Security Number, and detailed information about your bank accounts, investments, and insurance policies. (That’s why I’ve shown you how to check your advisor’s regulatory history.)
But your advisor’s staff will also have access to this information as well. Are they trustworthy? Your advisor should never hire anyone without checking their criminal record and credit report.
After all, people with checkered pasts or who are under financial pressure are more likely to engage in improper behavior than those who enjoy more stable lives. Ask your advisor if he conducts background checks of all job applicants — and be concerned if he does not.
Also make sure that your advisor periodically re-checks his staff ’s background. After all, many people’s lives drastically changed during the latter part of the ’00s. Millions were laid off, suffered massive investment losses, or lost their homes to foreclosure. Did any of this happen to the advisor’s staff (or their spouses)? If so, an employee might be experiencing severe financial difficulty, and temptation could place your money or identity at risk.
You should not trust your financial future to an advisor or firm who does not take basic steps to protect you.
Interview Question #14: What is the advisor’s reputation, both in the field and in the local community?
Those who have roots and solid reputations to protect tend to be more careful than someone with neither.
Interview Question #15: Do you have a clean regulatory record?
Don’t be afraid to ask this question and, if you like, follow it up by contacting the regulatory authorities.
Every legitimate practitioner holds at least one FINRA or insurance license, so it’s easy to find out if there have been any complaints.
To check with the SEC directly, go to www.adviserinfo.sec.gov and click on “Investment Advisor Search.”
To check with FINRA, go to www.finra.org/brokercheck.
Interview Question #16: Do I have to sign a contract?
Most Registered Investment Advisors require clients to sign contracts; brokers and insurance agents never do. What does the contract require you to do? What limits does it place on you? What abilities does it grant the advisor?
For example, some advisors don’t allow clients to terminate the relationship or make withdrawals without 90 days’ notice. Others allow the advisor to make all investment decisions without your prior consent. Some require you to pay in advance. Read the contract carefully, and make sure you’re comfortable with everything it says.
And our final two questions …
Interview Question #17: Why did you choose this work?
Aside from giving an occasional stupid answer (“I needed a job”), advisors who are asked this question tend to give a response that falls into one of two categories: They either talk about their fascination with investments, economics, financial planning, and other numbers-oriented topics, or they talk about their fascination with people and how the dynamics of family relationships, emotions, attitudes, and desires interact with effective financial decision-making.
You have to decide if you prefer to work with an advisor who is more interested in the markets, or more interested in how you will interact with the markets.
Interview Question #18: Why should I choose you?
This is a fair question, and the answer will reflect the advisor’s experience and depth of character. The answer should be a reflection of the advisor’s skills and abilities, with an emphasis on how he can help you.
Beware any candidate who treats this question as an opportunity to disparage others. True professionals do not need to diminish the competition in order to make themselves shine.
When you’re done with the interview, you should be able to ask one final question — of yourself: Do you like this person? Don’t hire someone you dislike.