Questions to Ask a Financial Advisor

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There’s more to picking a financial advisor than simply going with the first one you find. There are steps you should take and key questions to ask before making your final decision to ensure you are hiring the right financial planner. We discuss the most important questions to ask your financial advisor.

Questions to Ask a Potential Financial Advisor

When searching for a financial advisor, you should ideally, have two or three potential advisors in mind. While it may seem awkward or intrusive, a simple phone call to ask the following questions will go along way in determining whether your potential advisors is the right match for you. The call (or in-person meeting) will give you a feel of who they are, their credentials and if they are the right person to advise you. 

1) Are you a fiduciary?

A fiduciary is someone who is legally required to act solely in their client’s best financial interest, ahead of their own interests. You want to make sure you work with a fiduciary to reduce the amount of risk. If you’re working with someone who is certified to be an investment manager, then they will certainly be a fiduciary. Also, the Certified Financial Fiduciaries organization website will help you make sure you’re working with a fiduciary.

2) Do you have any disclosures?

Disclosures  are marks on an advisor’s permanent record denoting a history of criminal wrongdoing or consumer complaints. Technically you do not need to ask your advisor if they have disclosures as you can find them in public records in the form of their ADV. However, we believe it is still important to ask your advisor face to face to see if they will be forthcoming with their past behavior. We’d recommend asking your advisor and then confirming whether or not they have disclosures on their ADV form. 

3) Do you have any specific certifications?

This question is very important because it determines exactly the types of advisement can be provided by the person you’re working with. If you are looking for an advisor to help create a financial plan or prepare for retirement, you will need a Certified Financial Planner (CFP). However, if you also need an advisor that can provide estate planning, you need to make sure they have a Chartered Financial Analyst (CFA) or a Chartered Trust and Estate Planner (CTEP) certification. All of these certifications require specific qualifications including education and passing certain exams, like the Series 6, which is required for investing.

4) What services do you offer, and do you have any specialties?

After determining the credentials of your advisor you should dig deeper into their actual services. Just because an advisor has a CFP, does not mean they offer every type of planning service. Financial advisors can offer a variety of services, but they include long and short term financial planning, estate planning, investment management and even tax consultation. If you know you need assistance with taxes and retirement planning, you will want to find a financial planner who can handle both, or at least a firm that can offer both services. 

5) How are you paid?

Advisors can be paid through commission, fees, a combination of the two or have a salary. Depending on how they’re paid can potentially impact the motivation behind what your advisor suggests to you. For example, if they are paid based purely on commission, the advisor has a financial stake in you investing more through them or buying specific services from them. We recommend that most people who are looking for an advisor picked a “fee-based” or “fee-only” advisor. They are the ones most to be a fiduciary, and will have your best financial interest at heart. 

6) What other costs will I be charged for your services?

Advisors are paid differently, depending on what you need your them for, and if you will keep them ongoing. If you just need an advisor for the project of helping you put together a financial plan, they may charge by the hourly or project rate. If you need someone on retainer, they can charge you depending on how much money they’re managing for you or with an annual fee. It’s important to understand these fees upfront and what impacts changes in fees. 

7) What investment philosophy do you follow?

An investment philosophy is the approach they take to investing and advisement. The investor should be the ultimate driver. Some advisors lean towards recommending more risk, or socially responsible investing or growth investing. While you don’t need to know for sure what philosophy you want to follow personally, it’s important to know where your personal values lay and the amount of risk you’re personally comfortable with. 

8) How do you measure  the success of my investment portfolio?

Some advisors only seek to meet the market, while others aim much higher. Either way, they should have a measurement of success, even when the market is down. Success may also be partially determined by how long you plan to be invested and what your risk level is. All that said, the person you’re interviewing should provide a clear answer. 

9) How often will we communicate?

There isn’t necessarily a right or wrong answer to this question, but your advisor should tell you that you will communicate as frequently as you need. Some people like to get yearly, quarterly, weekly and maybe even daily updates on their finances. The right advisor for you will be the one who is willing to meet you as much as you need. 

10) How Long Have Your Longest Clients Been With You?

For seasoned advisors, this is a great question to ask because it gives an indication of how happy investors tend to be with their services. You don’t want to work with someone who has a high rate of client turnover. An alternative to this question is: what would your clients say about you?

Questions to Ask Your Current Financial Advisor

You may already have an advisor and you’re preparing to go into your next meeting with them. Let’s take a look at some important questions to be checking in with your advisor about.

1) How are My Investments Performing?

Frequency: Quarterly

You probably get monthly statements, but it’s usually a lot of data without much context behind it. You can check in with your advisor quarterly to discuss your investments and the state of the market, and if they recommend making any changes. These conversations can happen more or less frequently depending on your risk and how active an investor you are.

2) Is My Financial Plan Missing Anything?

Frequency: Yearly

Your financial plan will need to change over time, so it’s a good idea to ask your advisor every year if there’s anything your plan is missing. For example, maybe you don’t have enough of an emergency fund or you’re planning to have children but haven’t started factoring a child into your financial plan. Your advisor will work with you to integrate these aspects.

3) Am I On Track for Retirement?

Frequency: Yearly

Your portfolio may be performing at a rate you’re happy with but are you on track for retirement? This needs to be part of the conversation every year. If you’re lucky, you’ll be ahead of the game and may not need to continue investing at your current rate.

Questions to Ask Yourself Before Switching Financial Advisors

Not every investor and advisor will be the perfect match and there may come a time when you need to find someone else. Before you break it off with your advisor, take some time to ask yourself honest questions.

1) Can I Manage My Investments on My Own?

A lot of people don’t need an advisor and can manage their investments on their own, especially if they go into passive investments that don’t require any checking in. 

2) Am I Happy with the Performance of my Advisor?

You may be looking at your annual performance and seeing that the market was up but you lost money, or only performed slightly better. Is he or she there when you call or get right back to you?

3) What do I Need That I’m Lacking?

You need to be honest with yourself about why you’re even considering switching advisors. Maybe you need more communication or advisement. Have you tried addressing these problems head-on? Sometimes issues are worth fixing, but if your performance isn’t meeting your expectations and it’s costing you a lot of money, it may be time to move on.

Final Thoughts

At the end of the day, you need to be comfortable with your financial advisor and genuinely trust them. They need to almost feel like a trusted friend that you can turn to when you have a question and know you can be honest with them. Investing your money through an advisor is a delicate balance between using your head and understanding your gut. 

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