Best Questions to Ask a Financial Advisor

Financial Planners


If you’re considering hiring a financial advisor, it’s a good idea to have a list of questions ready during the interview process. Financial advice can be very helpful when you are unsure about how to proceed with a particular financial decision. At the same time, you want to feel confident that you are working with a qualified individual or team of individuals.

Here are some key questions to ask your financial advisor.

Advisors meet with clients and review documents.

1. Are you always a trustee?

1. Are you always a trustee?

This is a basic question. Who are your advisors? everytime Trustee?In other words, the advisor everytime Do you have your best interests in mind, not theirs?

Fiduciary duty requires an advisor to always act in your (client’s) interest over his own. Some advisors wear some hats. From one angle, they can act as advisors. A person can also be a product salesperson. Advisors guide you in making sound financial decisions, but salespeople may be at least equally interested in making financial decisions. themselves Quotas and sales requirements.

The stark reality is that many advisors, especially those working for large brokerage firms, are both advisors and salespeople at the same time. They can choose to work only with select clients who can pay high advisory fees or purchase high-value investments.

Before starting any kind of advisory relationship, it is imperative to ensure that the advisor is always the fiduciary. Eliminating conflicts of interest makes for a more fruitful dialogue for both parties.

2. How will I be paid?

2. How will I be paid?

This is another core relationship question and it is important to understand what you are paying for the services you receive.

Many advisors charge an “AUM fee”, a fee based on the assets they manage.

In practice, many advisors charge 1% of assets under management, which may not sound like much. But the reality is a little surprising. The 1% fee applied to a balance of $1,000,000 is $10,000 annually, and the fee increases proportionally as the account balance increases. Fees may actually add up over time and due to the nature of compound interest.

Other advisors may have different fee structures and may vary depending on whether or not you actually manage your money. Some advisors may charge a transaction fee for transactions they make on your behalf, while others have more bespoke cost arrangements.

A rewards-only financial planner, on the other hand, may charge an hourly fee for advice as needed, or a fixed fee for ongoing access to advice. Depending on the depth and complexity of your needs, other planners may prefer to work on a project basis as well.

The only way to know is to ask. However, make sure you understand what you are paying for the service. Don’t settle for just a percentage amount!

3. What is your investment philosophy?

3. What is your investment philosophy?

Asking about your advisor’s investment philosophy is an important way to learn how he or she thinks about risk, and it’s also an opportunity to showcase their knowledge of investing and broader financial planning.

You may not immediately agree with your advisor’s philosophy.But it’s important to see They really have a philosophy to offer. You can quickly tell if your advisor is speaking fluently on a topic.

They should be able to impart some knowledge and opinions about stocks, bonds, exchange traded funds (ETFs), mutual funds and insurance products. Overall, advisors should have comprehensive investment knowledge and be able to explain their personal philosophy on investing money.

4. Do you have financial qualifications?

4. Do you have financial qualifications?

Credentials aren’t always everything for an advisor. However, they demonstrate a commitment to research on financial topics and a commitment to professional technology.

Most financial certifications, such as the Chartered Financial Analyst (CFA) certification and the Certified Financial Planner (CFP) mark, are voluntary in nature. This means that the advisor has put in the time and energy to do the work necessary to earn one or more rewards, even if it wasn’t part of the job description.

Many of the more difficult certifications require hours of intense study to complete, and some exams, like the vaunted CFA exam, are rarely administered. It is not at all uncommon for candidates to take several years to complete the CFA program.

In general, determine advisor credentials by considering the full picture of the advisor as an individual. A few letters after someone’s name may not mean much to you. But when you combine a track record of fiduciary instruction with a range of experience, your credentials carry a lot of weight.

5. Do you incorporate tax planning into your recommendations?

5. Do you incorporate tax planning into your recommendations?

Like it or not, taxes are an ongoing expense for investors of all ages. Our tax-savvy advisors recommend the best products (and accounts) to minimize your lifetime tax liability. A simple change in your investment plan, such as placing all your investments in the most tax-efficient locations, makes things simpler, cheaper, and easier for your tax advisor to track.

As an example, holding dividend stocks in a taxable securities account will result in taxable income each time the dividend is paid. On the other hand, holding growth stocks in a taxable account won’t generate much taxable income until you start to realize the gains (but this is in your control).

Little knowledge like this can add up to a lot of value in the long run, so make sure your advisor has some knowledge of tax planning before agreeing to hire one.

6. How often do you contact me/us?

6. How often do you contact me/us?

Try to understand how often you communicate with your advisor. Or figure out if he should be considered only once a year or he only twice. This may be enough for some people. For those who need a more intimate advisory relationship, make sure your advisor is willing and able to provide it.

Also, make sure you understand your advisor’s preferences. mode about communication. This should match your expectations. In other words, you need to know if you will be meeting with your advisor virtually or if you would normally meet face-to-face. Having people who can connect in ways that work for each other will lay the foundation for a productive relationship.

Whenever possible, try to obtain this information before signing the dotted line.

Related investment topics

Why Advisor Selection Is So Important

Why Advisor Selection Is So Important

The financial advisory industry can be a black box, and navigating a never-ending sea of ​​cost structures and service offerings can be daunting. Knowing the key questions to ask your advisor will no doubt help you find the right person to ask for advice, but it will also help you reach your financial goals. Working with a trusted partner makes sense as long as you can identify the value they provide and drive long-term results.

Of the above questions, one that deserves particular attention is the question of fiduciary duty and remuneration. If your advisor isn’t necessarily someone you trust (i.e., if he doesn’t promise to put your best interests ahead of his own), consider whether that makes you want to be in a relationship. .

Second, it allows you to identify how much money you are paying for services on an ongoing basis. Be extra careful if you don’t take out your checkbook and pay the service charge of your own volition. Most percentage-based advisory fees are deducted “behind the scenes” or on the last page of the statement, so they often go unnoticed. Know exactly how much you’re paying and what you’re getting in return.

Finding an advisor doesn’t have to be a rigorous interrogation. It can be fun too. You want to like your advisor and feel you can trust him or her to put your best interests first.

Hire someone who takes the time to do your due diligence and gives you confidence in your financial decisions.

The Motley Fool has a disclosure policy.



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