What should I ask before hiring a financial advisor?

Before hiring a financial advisor, ask five things: who they are registered with, how they get paid, what conflicts of interest they have, what is on their record, and what they will actually do for you. Then check every answer against the public record, because an interview only tells you what the advisor wants you to hear.

I sit on the other side of these questions at Harvest Lane, in Sandy, Utah, and I would rather people asked more of them. Here they are in the order I would ask, with where to check each answer.

Who are you registered with, and in what capacity?

Investor.gov puts this question first: is the person registered with the SEC or a state securities regulator? The SEC’s investor bulletin has the longer list.

The capacity matters more than the title. Investment advisers generally owe clients a fiduciary duty and brokers generally do not, as the Utah Division of Securities notes. Some people hold both licenses; FINRA says to ask which role they are filling for your account.

Do not take the answer on faith; check it on the public record. IAPD at adviserinfo.sec.gov shows registered advisers and their Form ADV, and the SEC says the professional is not told you looked. FINRA BrokerCheck covers brokers and links through to IAPD. In Utah, the Division of Securities keeps its own database and answers questions at (801) 530-6600.

How do you get paid, and does anyone else pay you?

Ask both halves. The second one is the part people forget.

FINRA’s list of costs to ask about includes sales commissions, markups, and administrative and management charges. Then: will you or your firm receive any additional compensation for selling me a particular product, service, or type of account?

"Fee-only" is the shorthand for an advisor who answers no: in NAPFA’s words, compensated solely by the client. It says where the money comes from, not how much, and "fee-based" is not the same thing.

The written answer is in Form ADV Part 2A. Item 5 must describe how the adviser is paid, give a fee schedule, and say whether fees are negotiable and how they are billed. Item 14 covers client referrals and other compensation. Read both before you sign.

My own answer to both halves: Harvest Lane is fee-only, nobody but clients pays us, and our fees are tiered, as described in Form ADV Part 2A.

What conflicts of interest do you have, and what is on your record?

The SEC wrote one question for this and prints it in every relationship summary: how might your conflicts of interest affect me, and how will you address them? Everyone has some. An advisor who says "none" has not thought about it, or is hoping you have not.

That summary is Form CRS, and the delivery rule covers SEC-registered advisers and broker-dealers. Harvest Lane is state-registered, so its conflicts are written up in the Form ADV brochure. Whatever the firm, ask for the brochure.

Then the record. Investor.gov suggests asking whether the advisor or the firm has ever been disciplined by a regulator, and whether a client has ever sued them. A BrokerCheck report lists disciplinary actions, criminal convictions, civil judgments, and arbitration awards, so compare the answers to the report. In the brochure, disciplinary events go in Item 9.

What will you actually do for me?

This is where interviews go soft, because the answers all sound alike. Make them specific.

• Experience with people like me. Investor.gov’s wording is what experience do you have, especially with people in my circumstances? Push for a number, not "a lot."
• How you choose investments. Form CRS suggests how will you choose investments to recommend to me? Investor.gov adds: are you limited to certain products, and if so, why?
• Minimums. Is there a minimum account size, and what happens if your balance falls below it?
• Who holds the money. Item 15 of the brochure covers custody. You want a third-party custodian in your name.
• The plan. Ask what a normal year looks like: how often you meet, who updates the plan, and how you will both know whether it is working.

Write the answers down. The Utah Division of Securities, writing about investment salespeople, tells investors to take notes at all stages and to be wary of anyone who avoids questions or cannot give reasonable answers. That goes for advisors too.

If you already have an advisor and doubt the answers you got, skip the interview and send me your statements. I will put the answers next to the paperwork and tell you where they disagree. Complimentary.