Choosing an adviser, and what to ask

Financial advice is genuinely valuable and the market for it is confusing by design. A small number of questions resolve most of the confusion.

The standard question

Whether the person is a fiduciary, at all times, in writing.

A fiduciary is obliged to act in the client's best interest. Other standards require only that a recommendation be suitable, which permits recommending a more expensive product where a cheaper equivalent exists.

The complication is that some professionals operate under different standards in different capacities — as a fiduciary when providing advice and as a salesperson when selling a product.

Which is why the question needs the qualifier: at all times, in writing.

A reluctance to provide that in writing is a complete answer.

The payment question

How the person is compensated, in full.

Fee-only. Paid solely by the client, through a percentage of assets, an hourly rate, a flat retainer or a project fee. No commissions.

Fee-based. A term that sounds similar and means something different — a combination of fees and commissions.

The similarity of the terms is not accidental.

Commission. Paid by product providers, which creates a direct incentive toward products that pay more.

None of these is automatically disqualifying, and knowing which applies tells you where the conflicts lie.

The cost question

Total annual cost, as a percentage and as a dollar amount, including the advisory fee, the underlying fund costs, and any platform or product charges.

A one per cent advisory fee on top of one per cent fund costs is two per cent, which is a substantial drag over a retirement.

The dollar figure matters because percentages feel small. One per cent of a substantial portfolio is a large annual sum and it is worth seeing it stated.

The service question

What is actually delivered.

Investment management alone is a commodity, and low-cost options are widely available.

Comprehensive planning — tax coordination, withdrawal sequencing, Social Security analysis, insurance review, estate coordination, and behavioural support during declines — is where advisers add value that is difficult to replicate.

Asking specifically which of these are included, and how often each is reviewed, distinguishes between the two.

Credentials

The alphabet is extensive and the meaning varies.

Some designations require substantial examination, experience and continuing education. Others require a weekend course.

Designations aimed specifically at older clients are worth particular scepticism, since several exist primarily as marketing.

The more useful check is the regulatory record, which is publicly searchable and shows registration history and any disciplinary events.

Looking it up takes minutes and is the single most informative check available.

The alternatives to a percentage fee

Worth knowing about because they suit many people better.

Hourly advice, for specific questions.

Flat-fee planning, producing a plan you then implement yourself.

Subscription arrangements with ongoing access.

These have grown considerably, and for someone with a straightforward situation they can deliver the same value at a fraction of the cost of an asset-based fee.

Warning signs

Pressure to decide quickly.

Recommendations made before the person understands your situation.

Complex products explained in terms you cannot repeat back.

Guarantees of returns.

Reluctance to state total costs.

Free seminars including a meal, which are a well-documented sales channel for high-commission products.

Discouragement of consulting anyone else.

The reasonable position

Good advice is worth paying for, particularly around the retirement transition where the decisions are large, interconnected and difficult to reverse.

The objective is not to avoid paying but to know exactly what you are paying, to whom, and for what.

The questions to ask about your own file

For anyone already working with an adviser.

What did I pay in total last year, in dollars, including fund costs?

What is my current asset allocation, and why is it that?

What did we do last year on tax planning specifically?

How would my spouse take this over?

Reasonable answers to those four take a competent adviser a few minutes. Difficulty producing them is informative.

Second opinions

Worth obtaining periodically, and it is uncomfortable to arrange.

An hourly fee-only planner will review an existing arrangement for a defined cost with no interest in taking over the assets, which makes their assessment more useful than one from someone hoping to win the business.

General information only, not financial advice. Verify any adviser's registration and disciplinary history through the relevant public regulatory databases.