10 Questions to Ask a Financial Advisor • Benzinga
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It is not enough to choose a financial adviser than to simply choose the first one you find. There are steps to follow and key questions to ask before making your final decision to ensure you hire the right financial expert. We discuss the most important questions to ask your financial advisor.
Questions to Ask a Potential Financial Advisor
When looking for a financial advisor, you should ideally have two or three potential advisors in mind. Although it may seem awkward or intrusive, a simple phone call to ask the following questions will go a long way in determining if your potential advisor is the right person for you. A good advisor is happy to take the time to talk to you about becoming a potential client. The call (or meeting in person) will give you an idea of who they are, their references and if they are the right person to advise you.
1) Are you a fiduciary?
A fiduciary is a person who is legally bound to act only in the best financial interest of his client, before his own interests. You want to make sure you’re working with a fiduciary to reduce risk. If you work with someone who is certified to be an investment manager or with a CFP®, then they will definitely be a fiduciary. Additionally, you can search FINRA’s IAPD (Investment Advisor Public Disclosure) site to find the advisor you are considering; once you locate the company, click on its part 2 brochure where you can see if it is a trustee.
2) Do you have any information to provide?
Disclosures are marks on an advisor’s permanent record indicating a history of criminal acts or consumer complaints. Technically, you don’t need to ask your advisor if they have any disclosures, as you can find them on the public record in the form of their ADV on the Investment Advisor Public Disclosure (IAPD) site. However, we think it’s still important to ask your advisor face-to-face to see if they’ll be open with their past behavior. We recommend you ask your advisor and then confirm whether or not they have information on their ADV form.
3) Do you have specific certifications?
This question is very important because it determines exactly the types of advice that can be provided by the person you are working with. If you’re looking for an advisor to help you create a financial plan or prepare for retirement, you may prefer a Certified Financial Planner (CFP®). However, if you also need an advisor who can provide estate planning, you should ensure that they have a Chartered Financial Analyst (CFA) or Chartered Trust and Estate Planner (CTEP) certification. All of these certifications require specific qualifications, including education and passing certain exams, such as Series 6, which is required for investing.
4) What services do you offer and do you have specialties?
After determining your advisor’s credentials, you need to dig deeper into their actual services. Just because an advisor has a CFP® doesn’t mean they offer all types of planning services. Financial advisors can offer a variety of services, including long-term and short-term financial planning, estate planning, investment management, and even tax consulting. If you know you need help with taxes and retirement planning, you’ll want to find a financial planner who can handle both, or at least a company that can offer both services.
5) How are you paid?
Advisors may be compensated in the form of salary, commission, honorarium, or a combination thereof. Depending on how they are paid, this can impact the motivation behind what your advisor suggests to you. For example, if they are paid solely on commission, the advisor has a financial interest in you investing more through them or purchasing specific services from them. We recommend that most people looking for an advisor choose a “paid” or “paid only” advisor. They are most likely to be fiduciaries and will have your best financial interests at heart.
6) What other fees will I pay for your services?
Advisors are paid differently, depending on what you need them for and whether you plan to keep them on permanently. If you just need a consultant for the financial plan project, they can charge you at the hourly rate or at the project rate. If you need a person under mandate, they can charge you according to the amount of money they manage for you or with an annual fee. Many financial advisors charge a percentage of the assets they manage for you. For example, if your advisor manages $200,000 of your money and charges 1% of assets under management (AUM), you’ll pay them $2,000 a year to invest your money for you. It is important to understand these fees upfront and what impacts fee changes.
7) What investment philosophy do you follow?
An investment philosophy is the approach advisors take to investing and advising. The investor should be the ultimate driver. Some advisors tend to recommend riskier, socially responsible or growth investments. While you don’t need to know for sure which philosophy you personally want to follow, it is important to know where your personal values lie and how much risk you are personally comfortable with. Most financial advisors will have you complete a risk tolerance survey so they can create a tailored investment strategy for you.
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 measure of success even when the market is down. Success can also be partly determined by how long you plan to invest and your level of risk. That said, the person you are 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 often as needed. Some people like to receive annual, quarterly, weekly, and maybe even daily updates on their finances. The right advisor for you will be one who is willing to meet with you as much as you need.
10) How long have your oldest clients been with you?
For seasoned advisors, this is a great question to ask as it gives an indication of investor satisfaction with their services. You don’t want to work with someone who has a high client turnover rate. An alternative to this question is: what would your customers say about you?
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Questions to ask your current financial advisor
You may already have an advisor and are preparing to attend your next meeting with them. Let’s take a look at some important questions to check with your advisor.
1) How are my investments performing?
You probably receive monthly statements, but it’s usually a lot of data without much context. You can consult with your advisor quarterly to discuss your investments and the state of the market, and whether he recommends any changes. These conversations may occur more or less frequently depending on your risk and how active you are as an investor.
2) Is my financial plan missing something?
Your financial plan will need to change over time, so it’s a good idea to ask your advisor each year if there’s anything missing from your plan. For example, maybe you don’t have enough emergency funds, or you’re planning to have kids but haven’t started factoring that into your financial plan. Your advisor will work with you to incorporate these aspects.
3) Am I on track for retirement?
Your portfolio may be working at a pace you’re happy with, but are you on track for retirement? It has to be part of the conversation every year. If you’re lucky, you’ll be ahead of the game.
Questions to ask yourself before switching financial advisors
Not every investor and advisor will be the right fit, and there may come a time when you need to find someone else. Before you break up with your advisor, take the time to ask yourself some honest questions.
1) Can I manage my investments myself?
Many people don’t need an advisor and can manage their investments on their own, especially if they opt for passive investments that don’t require any verification.
2) Am I satisfied with my advisor’s performance?
Perhaps you look at your yearly performance and find that the market was up, but you lost money or did only slightly better. Is he or she there when you call or do you answer immediately?
3) What do I need and what am I missing?
You need to be honest with yourself about why you are even considering switching advisors. Maybe you need more communication or advice. Have you tried to solve these problems head-on? Sometimes problems are worth fixing, but if your performance isn’t meeting your expectations and it’s costing you a lot of money, it might be time to move on. Yes, you took out a credit builder loan with a platform like MoneyLion when you had a tough month at work, but that’s not a problem, in fact, it’s a good idea. It’s easier to move forward when you only deal with the most serious concerns instead of worrying about small things that are easy to pay for or reconcile.
Ultimately, you need to be comfortable with your financial advisor and really trust them. They should almost feel like a trusted friend you can turn to with 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 instincts.
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