5 Questions to Ask Before You Hire a Financial Advisor

I had someone call her office the other day, and she was interviewing multiple financial advisors, and I just happened to pick up the phone. And in the middle of the call, she said, I am overwhelmed. I have no idea what to ask. Well, if that's you, if you sympathize with that feeling, you're in luck. Because today we're going to give you the exact questions you need to ask when you're evaluating a financial advisor. But first, my name is Kevin Lum. I'm a certified financial planning professional. And this channel is dedicated to helping a million people retire without worry. So today I'm handing the video over to Zach Holcomb from our team here at Foundry. And I asked Zach to do this video because if you were to reach out to Foundry, he is often the first person you'll meet. So he's literally had hundreds of conversations, maybe thousands of conversations with people who are exploring working with different financial advisors. And he's compiled the five key questions you have to ask. And they're excellent questions. Zach, take it away. The advisor that was great at helping you grow your money may not be the best advisor to help you actually spend it in retirement. Those are two completely different jobs. Accumulation is generally pretty simple. It's just grow the pile as big as possible. Retirement requires a different skill set. You have to use different tools. There's different questions that have to be asked. And a lot of advisors haven't made that shift. So today I'm going to give you five questions that you can use to evaluate your advisor today to see if they're truly equipped for your retirement. You can use this on an advisor you may be currently working with or maybe somebody you're evaluating. By the end of this discussion, you're going to have a scorecard that you can use to evaluate any financial advisor, including us here at Foundry. So before I begin, I want to share what I consider to be the three levels of financial advice that you can receive or purchase. Because from the outside looking in, a lot of financial advice and financial advisors, it kind of all looks and sounds the same. To start, I want you to think about a pyramid. And we're going to start at the base. Why the base? Because that's the biggest. The base is going to be level one. And I call this product providers. What is a product provider? Well, this is typically where you hold like your 401k or your self-directed IRA. Generally, when you're just first starting out in your career, you're not going to get a lot of personalized help here. Maybe you get access to a questionnaire that helps you figure out your risk tolerance or the best target date fund to use in your 401k. Pretty simplistic tools as you're just starting out, beginning to get established and really putting a plan in place to grow the pile. Now you may get to a point relatively quickly in your career where you say, hey, the numbers are starting to get pretty sizable. I don't know if I'm comfortable making all these decisions myself anymore. Level two is an investment advisor. What do they do? Well, they focus on one thing. It is the investments. They help you pick funds. They help you with your allocation. They may rebalance a couple times a year and they're going to send you a couple nice performance reports. And that's generally going to be it. They're not doing tax planning. They're not going to help you with long-term retirement income. They're definitely not helping you with legacy planning. And that's not a knock against the level two advisor. It's just a very narrow job. Level three is what I would like to call a comprehensive or holistic planner. Those advisors and those groups, they're going to look at everything when it comes to your specific situation. I'm talking your income plan, how that impacts your tax planning year over year in retirement. When's it going to be the optimal time to draw sole security? How does this impact everything from a healthcare perspective? What is your vision for retirement going to look like? At level three, the investments are just one piece of a much bigger picture. Here's why this matters so much. Most people watching this video have built portfolios that require level three advice. And many of you are still getting level two or level one today. The five questions I'm about to share with you are going to help you evaluate what level of planning you're actually receiving today. Question number one, and this is one of the most fundamental ones. Does your advisor lead with a product or a plan? A product first advisor, they're going to recommend something before they even completely understand your situation. You sit down with them for the first time and within 30 minutes, they're talking about a specific annuity or investment vehicle or a hot stock that they're thinking about. They don't know your tax situation. They don't know what your spending goals are like. They don't know what the best sole security option is going to be for you, but they've already landed on an answer. It's a solution before diagnosis. And a lot of those cases, they are getting paid when you buy those specific investments. A plan first advisor, they're going to do the complete opposite. They always start with you. What do you want retirement to look like? What's the maximum amount of money you can spend in retirement and still have a plan be 100% successful? What's your real risk tolerance based on what you want to accomplish in this stage of life? They build a plan. And if a product is needed, it serves the plan, not the other way around. There's a very simple test you can use for a first meeting with an advisor. Did they ask more questions or did they make more recommendations? Very simple. Question two, are they a fiduciary 100% of the time? And can you clearly explain how they are compensated? There are generally three different compensation models. And this is where a lot of the confusion in this industry lives. The first would be commission-based. This is the oldest model. The advisor is getting paid when they buy or sell. More transactions equals more revenue for them. Still very much alive, especially in the insurance world. Then you have fee-based advisors. And I want you to watch the wording very carefully here. Fee-based, not fee only. They charge a fee and they can earn commissions. They have dual incentives. They might genuinely believe that an annuity is the right fit for you, but they also are getting paid a commission when you buy it. That's a conflict of interest even when the advisor may be well-intentioned. The final is a fee-only fiduciary. They're gonna charge you a transparent fee and that's the whole story. It may be a percentage of the assets that they're managing. It may be a flat fee or could be an hourly rate. There are no commissions, no product revenue, no kickbacks. So, can you explain your advisor's compensation model clearly in one sentence? If it's vague, if you have trouble understanding it, or if you're not even sure if commissions are in there, that is a problem. Clarity about incentives is the foundation of trust when it comes to a financial relationship. I recently talked to a family who asked their advisor, hey, can you clearly tell me what I'm paying you each month and each year? And the advisor said, well, it's pretty complicated. I have to go run a special report and it's not clear on your statements today. That's an issue because they never got a straight number. You should be able to get a number that is black and white and very clearly explains this is exactly what you're paying your advisor. Question number three, and this is a big one. Nine out of 10 people I talk to, they call us and they ask about tax planning. The test here is, does your advisor do tax planning or do they punt it out to somebody else? You ask about Roth conversions and they say, great idea. And they never really expand on it. Or you're gonna have to talk to an outside CPA or we're not equipped to be able to help you with this. Look, your CPA matters. They're really important. But a CPA's job generally is to report what happened last year. A financial advisor or firm that does proactive tax planning, they wanna shape what happens this year, next year, and for the next 30, 40 years. Those are fundamentally different skills. Real retirement planning always involves tax planning. And you need to ensure that your advisor is equipped to be able to help answer these questions, especially in the retirement phase of life. Here's the scale of tax planning. And I wanna be clear, these are hypothetical numbers based on what we typically see. Family might have a $2 million portfolio, both in their early 60s. They haven't done any tax planning once they retire. So they missed a Roth conversion window. Their RMDs are spiking their income later in life. They didn't know about IRMA surcharges. They weren't withdrawing from their accounts in the most tax efficient manner. Over 25, 30 years, that tax cost can run multi-six figures. But that same family, tax planning done proactively, the life savings could be absolutely substantial. I'm talking in the six figures significantly. Your situation is going to differ, but that gap is often larger than the advisory fee itself. If your advisor doesn't have that capability in-house, it doesn't mean they're a bad person. You're just paying for advice and you're not getting one of the most valuable pieces of it. Question four, I love this one. After your last meeting with your advisor, did you leave with a much more clear head or were you more confused about everything after that last conversation? Are you easily able to answer questions like, I know exactly what I can spend each month and each year and still have my plan be successful. I know exactly what my tax planning strategy is. I know what happens if we go into a long-term recession or there's a big downturn in the market. I know exactly what it means for me to be on track. If you can answer all those questions confidently after every meeting with your advisor, they're communicating with you exceptionally well. That's how it should be. If you leave your meetings and you find that they're full of jargon and performance heavy numbers and you really don't know if you're on track, something is wrong there. Direct quote from somebody I spoke with recently. They said they keep asking their advisor, what is my plan? What can I spend? What are my guardrails? And the answer they were consistently getting was, you're fine, you've got plenty of money. You don't need to worry about anything. That's not an answer. That's just hand-waving. Your fine is not a plan. Don't worry is not a tax planning strategy. The best advisors are translators. They take genuinely complex things. Retirement is complex and they make them simple and not dumbed down. There's a difference. Your advisor's job is to leave you less overwhelmed than when you walk in for that meeting with them. And if that complexity is making you feel like you're the one that doesn't get it, that's not on you. A lot of the times that's on them. All right, question five. And this is the final one. Almost nobody ever asked this one. Does your advisor ever tell you anything that you don't wanna hear? There's a comfort advisor and then there's the challenge advisor. The comfort advisor is really easy to work with. They're always gonna tell you you're fine. Everything's on track. They're never raising any uncomfortable questions with you. They basically agree with every idea you bring to the table. Feels great. But the reality is they're not protecting you. The challenge advisor, they're gonna sound a little bit different. They may ask you questions like, hey, we haven't talked about long-term care yet. I know it's an uncomfortable subject, but this is something we really need to prioritize. Hey, we've planned for you to spend $15,000 a month and be successful in retirement. You've been consistently spending 25,000 plus. We really need to revisit this. Questions and statements that may be harder to hear, but this is what you're paying for. One really important distinction here is challenging and condescending are not the same thing. Somebody recently told me they felt really intimidated by their advisor that he was talking down to them. That's not challenging. That's just really bad communication. A good advisor, they're gonna challenge you with respect, with data, and always with your best interests at heart. The final test here is, has your advisor ever told you something you did not wanna hear? If the answer is never, across years or decades together in some cases, either your financial life is absolutely flawless, which is pretty rare, or they're avoiding hard conversations to keep you comfortable. Comfortable and protected are not the same thing. Okay, to wrap up, your five questions. This is how you can score your advisor. Number one, do they lead with a plan or product? Passing score, they have a real process, full data gathering before any specific recommendations are made. Number two, are they a fee-only fiduciary? Passing score, they have a transparent fee, no outside commissions, and they are always legally bound to act in your best interest. Number three, do they do proactive tax planning? They don't punt it to a CPA or say you have to go work with somebody else. Number four, do meetings leave you clearer? Passing is you can always answer the questions around, is my plan on track? I know exactly what my spending number is. We have tax planning proactively mapped out each and every year. And finally, number five, do they challenge your assumptions? They're getting a passing score if they're telling you hard truths, respectfully, with data. If you scored five out of five today, you need to hold onto that advisor and tell them they're doing a great job because that's rare. If you scored three or four, it might be worth a conversation about the gaps with somebody else. If you scored one or two or even zero, it really might be time to consider a change. You didn't spend 30 or 40 years building this to hand it to somebody who isn't equipped for the most important financial transition of your life. That's retirement. Retirement isn't just about investments. It's a life event. It's gonna change how you think about income, your taxes, sole security, most importantly, your purpose in retirement. You deserve somebody who really understands all of that. If you have that advisor, hold onto them. If you scored your advisor and found gaps, we offer what we call a free retirement assessment, short conversation where we walk through what matters to you most today, understand if there's any gaps in your planning and see what it might be costing. One clear next step forward. No obligation. Sometimes that next step is you're in great shape and you don't need to make any changes to your situation today. If you found this video helpful and you'd like to have a conversation about the things I discussed today, you can click a link in the description below to get that free retirement assessment. The team at Foundry, we'd love to chat with you soon. Have a great day. Bye-bye. So there you have it. Thanks, Zach. You did a good job. I knew Zach was gonna do a great job because he does webinars for our firm. And after he did a webinar, I don't know, it's been three or four weeks ago, someone emailed in. This is a true story. They emailed in something along the lines of, Zach, you should be doing all the YouTube videos instead of that Kevin guy. You're much better than him. Now, if you've interviewed advisors before, you've interviewed a financial advisor, tell me in the comments what you asked them or what you wished you would have asked in retrospect. And if you know someone who's shopping for a financial advisor right now, would you be willing to send them this video? I think it could be very helpful. Also, I will put a link in the description below or I'll pin it in the comments below to a free guide on selecting a financial advisor that we'll send to you. And if you're bored looking for more content, maybe you don't agree. Maybe you think I'm better than that Zach guy. Here's a video on why you should fire your financial advisor.