CNBC Talks With Neil Waxman on What to ask References

Friday, February 23, 2018 |

Referred to a Financial Advisor? Here's What You Should Ask

February 15, 2018 Deborah Nason | @dnason

  • Friends and family may refer you to an advisor they like, even though they have no data on his or her qualifications or other references.
  • Questions to ask include whether the advisor is a fiduciary, how they get paid and whether they're willing to work as part of a broader team that includes attorneys and accountants.
  • Some advisors point out it's wiser to Google them than to ask for a set of presumably stacked references.

Investors looking to evaluate potential financial advisors can avail themselves of many lists of sample questions, such as those suggested by the Financial Industry Regulatory Authority, for interviewing practitioners. But just how to interview references, as is frequently suggested, is less clear. What kinds of questions should a reference expect?

"Getting a reference from a friend or peer is a great place to start," said Scott A. Bishop, certified financial planner and partner with STA Wealth Management. "But many [references] have a great 'feel' about the person, but not the qualifications or references."

Bishop said the first thing you should check is their credentials. "Find out whether [the advisor is] in sales, via a broker dealer/insurance company, or will they act like a fiduciary, such as many affiliated with RIAs will be," he said. (RIA is an acronym for registered investment advisor.)

He also suggested asking references about the services they have received in the past, such as investment management, retirement planning, estate planning, tax planning, etc.

For his part, Bruce Colin, CFP and owner of Bruce Colin & Co., offers these questions for references:

  • Has the advisor been very clear about explaining how he or she gets paid? Can the advisor's client explain it accurately to the prospective client?
  • Does your advisor have discretionary authority, which allows him or her to invest, transfer or otherwise act on your money without prior consent? Or does the advisor seek your approval and understanding before initiating each and every transaction?
  • Is your advisor willing to work with or be a part of a team of other professionals, including attorneys, accountants, etc.?

It's important to be provided with references whose circumstances and needs are similar to the prospective client, said Neil R. Waxman, CFP and managing director with Capital Advisors. In addition, the references must feel very well served and should delineate why they are satisfied.

"By providing guidance to clients, you save them from saying they don't know how they're charged."-Mark S. Germain, founder and CEO of Beacon Wealth Management

Some of Waxman's suggested questions for references include:

  • How long have you been a client?
  • Are the services of interest to the prospective client being delivered to the reference's expectations?
  • Who is on your advisory team, how are services delivered, and how would you rate responsiveness?
  • How would you rate the level of communication? Do you feel you are adequately educated so you can make informed decisions?
  • Is there anything you would change or wish you could improve in your advisory relationship?

Sallie Mullins Thompson, CPA, offered some additional questions, such as asking whether a complete data-gathering process was conducted; whether a holistic, goal-oriented plan has been implemented to meet client objectives; if there's a monitoring mechanism in place; whether the tax impact of the plan has been evaluated and explained; and whether there is regular follow-up to meetings and reports.

Points of references

"Giving referrals is the heart-blood of the adviser business, and it is often the referral from a person you did not expect who becomes a top client," said Mark S. Germain, CFP, founder and CEO of Beacon Wealth Management.

To proactively increase the effectiveness of potential references, he periodically sends current clients a series of questions and answers reminding them of what his advisors do and how they get paid. Examples include:

  • "[Name of firm] is a fee-only advisor, and we do not receive commissions on any purchase or sale of securities into your accounts."
  • "Our advice is continuous as we make changes to client portfolios when we feel the market indicates a change is needed."
  • "Fees include an annual planning fee and a fee for assets that we supervise. This approach allows us to have a team that is always available to answer your financial questions and address the decision points."

"By providing guidance to clients, you save them from saying they don't know how they're charged," Germain said. "Or, when contacted, they have a clear answer."

Not all advisors see great value in providing references, however. "That is a dumb thing to do," said Jon Ten Haagen, CFP, founder and principal of Ten Haagen Financial Group. "As a broker-advisor, who am I going to suggest they call? A client who loves me or someone who may barely know my name? "Of course, I'm going to stack the deck."

Ten Haagen added that "it would be better to Google me and review my website, especially because by law — SEC, Finra, etc. — it needs to be truthful."

He suggests potential clients look at Facebook, Twitter and LinkedIn to see what he's posting and what others post about him.

"This is a truer test, because it is everyday people who know me or have come across me, speaking their minds," Ten Haagen said. "However, be wary of the people who 'like' me, as some people will 'like' people they don't even know."

— By Deborah Nason, special to
Referred to a Financial Advisor? Here's What You Should Ask February 15, 2018

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