Last month I wrote an article on some of the most common types of financial professionals. I discussed some of the differences as well as considerations. Now that you have an understanding of the differences, it is time to hire someone. Where do you start? Here are a few conversation starters to get an idea of who you want to work with and who can help you with your specific needs:
- “What licenses or designations do you carry?” You are looking to identify what this person can do and give advice on.
- “Do you take taxation and inflation into account? How?” Some professionals don’t include how taxes impact a financial plan or retirement plan. Many don’t include how inflation will impact your numbers.
- “Do you use average or actual annualized rate of return historicals?” What you are looking for here is an actual annualized history. Average rate of return is simply smoke in mirrors. Here is an overtly analytical and hypothetical example for illustrative purposes: If you have a $100,000 portfolio and the market hypothetically went up 100%, down 50%, up 100%, then down 50% over four years, that is an average rate of return of 25%. Double check my math. Add up the returns and divide them by 4. Now let’s look at the dollars. The $100,000 doubled to $200,000. Then it got cut in half to $100,000. It doubled to $200,000 again. Then got cut in half to $100,000 again. An actual annualized rate of return of 0%. You didn’t earn a single dollar in those four years even though the averaged rate of return for those four years was 25%! So ignore the average.
- “What can I expect from your process?” Knowing what to expect will help you determine how comfortable you are working with this professional, as well as how they will approach meeting your financial goals. It also doesn’t hurt to know they HAVE a process and will be organized while working with you.
Hopefully this article gives you some ideas and courage to interview a financial pro or two! I know it can be intimidating. Just remember, you are hiring a professional to provide a service. Don’t be intimidated, don’t be afraid to ask questions, to challenge answers or ideas you aren’t comfortable with, and don’t make emotional decisions when deciding whom to work with.