Your divorce is finalized, and the financial settlement is clear(ish). How do you take control of your new-found financial independence?
The first item on our Post Divorce Financial Checklist is “Interview and retain the services of a financial planner.” You may have never done so in your married life so here are the most important questions to ask when looking for a new financial advisor after divorce.
- What CREDENTIALS do you have? CFP (CERTIFIED FINANCIAL PLANNER), CPA (Certified Public Accountant), CFA (Chartered Financial Analyst) are the most rigorous to obtain but there are hundreds of alphabet soup credentials available in the financial advice world. Some represent specific specialties like the CDFA (Certified Divorce Financial Analyst) designation while some, such as the AIF (Accredited Investment Fiduciary) merely represent the advisor’s commitment to acting as a fiduciary in client relationships. Keep two things in mind,
- simply having professional designations does not necessarily make a good advisor
- licenses are not credentials, most all advisors will have Series 7, 24, 51, 63, 65, 66 and insurance licenses
- Are you a FIDUCIARY? Your advisor should act as a Fiduciary for clients meaning, in simple terms, they would never do something with your money they would not do with their own and they will always put your interests ahead of their own. Here is the Wikipedia definition of Fiduciary.
- Do you have any disciplinary records? Check out the Securities Exchange Commission website to check up on them just in case.
- How are my assets safeguarded?
- How often will we meet and what will we talk about? Your advisor should be proactive in communicating with you and scheduling meetings to review financial planning goals and investment performance. They should also have a structured process for providing their services. A typical financial planning relationship has the following steps at minimum. You will notice Cross Roads Divorce Advisors follows this same process.
- Establishing and defining the client planner relationship
- Gathering client data
- Analyzing and evaluating the client’s financial status
- Developing and presenting the financial planning recommendations
- Implementing the financial planning recommendations
- Monitoring
- How long have you worked at the current firm? Where were you previously? Why did you leave? Advisors move from firm to firm on a pretty regular basis for a number of reasons. Some for altruistic reasons seeking to provide better client service, others move for a pay-day. An advisor who moves from one big bank to another big bank, as an example, could be paid millions of dollars for doing so. If you check the background of an advisor and they move every 5 to 10 years, they are likely chasing the pay day each time. Be wary of them as they may do it again.
- HOW DO YOU GET PAID for investments you recommend and other services you provide? The financial advisory world is full of complicated compensation structures. An advisor could be paid commissions by their employer as well as outside entities such as insurance companies and mutual funds for selling you a product. In general, you should avoid any advisor who accepts commissions for investment decisions. Look for an advisor who charges a percentage of the assets they manage for you. Industry standard these days is around 1%.
- What SERVICES do you offer outside of investment management? Do you provide financial planning services? If so, what does this include? Paying 1% a year from your portfolio for just investment advice is an old and antiquated service platform. Your advisor should offer Comprehensive Wealth Management services which include financial planning assistance with cash flow management, retirement planning, estate planning, tax planning and dependent care planning. if you need an investment advisor you also need financial planning. Most of our clients at Cross Roads Divorce Advisors need a financial planner more than an investment advisor.
- Can I speak to a client of yours about their experience working with you? Speaking to a current client about the prospective advisor is absolutely mandatory. Feel free to ask them some of these questions as well.
- What happens to my account if something happens to you? Do you have a SUCCESSION PLAN? Advisors are notoriously bad at succession planning for their own businesses. A good succession plan takes proactive steps to protect clients and their money if an important decision maker and advisor becomes ill, dies or simply retires. Your advisor should be able to tell you what happens in the case of each event. It may be a current business partner would step in, a younger advisor is being mentored to step in, an entire new firm would take over or the worst case, they have no plan at all. Do not work with an advisor who has no succession plans as you leave your financial security up to chance if something should happen to them.
- Who is your IDEAL CLIENT? Most advisors will struggle to explain their ideal client outside of telling you the minimum assets they require to work with you. It is important to understand this ideal client make up because it can inform you how likely the advisor is to be able to handle your individual needs. If you are a newly divorced woman who has never managed her own money; the advisor specializing in executives at tech companies is probably not your best bet. Cross Roads Divorce Advisors recommends you find an advisor who specializes in working with individuals after divorce. You have very specific needs from a financial planning perspective and need an advisor who will educate you along the way.
- What is your INVESTMENT PHILOSOPHY, in simple terms? How frequently will my portfolio change and who makes decisions as to when and how to change it? You will be surprised how many advisors don’t actually manage the investment themselves. They outsource the responsibility to others. There is nothing wrong with this. Your advisor’s job is to work with you to pursue your financial goals, manage your lifestyle and help you make financial decisions. Outsourcing investment management allows the advisor to concentrate on you the client. BUT, if they can’t explain how the portfolio is managed, why it is managed that way and who is ultimately responsible for decision making they are doing more than outsourcing, they are abrogating their fiduciary responsibility to you. They still need to oversee the outside investment managers and make strategic decisions about risk profile.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at lfalvo@crossroadsdivorce.com or (585) 542-2382.