Asking the 5 W's key to finding a financial adviser

Question: I am nearing retirement and am in the process of selling my practice to my partner. The sale will result in a substantial lump-sum payment.

I have been handling my own investments in the past. However, I believe that it is time to hire a professional to oversee my investment portfolio. Do you have any tips on hiring an investment adviser?

Answer: This is an important question to ask because you will likely be developing a long-term professional relationship with this person.

An ideal place to start is to ask your friends and family for referrals. Also, organizations such as the Certified Financial Planner Board of Standards (link) and the Investment Management Consultants Assn. (link) have resources you can tap into.

Once you obtain two or three names, contact them to arrange a meeting or phone interview. There are some important questions to ask during the interview process. As a baseline, you should use the "5 W's": Who, What, Where, When and Why.

Let's begin with "Who." That is, who are they and with whom do they work?

Ask the adviser about his or her background and credentials. Ask questions such as: How long have you been in this business? What are your qualifications and/or certifications? Also, what is your typical client profile?

It is important to know that the professional works with clients similar to you in terms of income level and/or net worth.

In terms of "What," ask the adviser what services are rendered on behalf of clients.

Ask questions such as: What is your investment philosophy and approach? What do you charge for your services? There are three basic ways an adviser is compensated: commission-based, fee-only and fee-based.

Advisers that charge commissions earn income based upon transactions. That is, they are compensated when implementing your portfolio (buying mutual funds or other investment products).

Fee-only planners charge a fixed fee (hourly rate) or a percentage of assets under supervision, while fee-based planners typically charge both fees and commissions. Be sure that you fully understand how the adviser is compensated.

Then comes "Where" -- as in where does the adviser do business? Try to meet the adviser at his or her place of business and note how you are treated by others on the team. Do they seem happy? This may reveal a significant amount of information regarding the culture of the firm and the character of the professionals.

"When" -- Ask how often the adviser meets face-to-face with his or her clients. How often can you expect to be contacted regarding your portfolio? Is the answer in line with your expectations?

"Why" -- Ask the adviser why you should hire him or her. Ask questions such as: What distinguishes you from your competition? For example, are you independent? Do you provide customized solutions appropriate to my specific situation?

It is important to do your homework when selecting an investment adviser, as this person or firm will be critical to your ability to achieve your financial objectives. Best of luck with your search.