7 Essential Questions To Ask Your Financial Advisor Today

Working with a financial professional is a key step in managing your wealth. These questions to ask your financial advisor are critical to ensuring your advisor’s practice is aligned with your needs.

There’s so much more to our financial lives than figuring out which ETF to buy or reallocating an investment portfolio. A good advisor will help you navigate the ever-changing rules for retirement accounts, taxes, and more.

Take this opportunity to check in with your advisor and make sure you’re up to speed. If you’re looking for a new advisor, you owe it to yourself to ask these questions.

What Are Your Qualifications And Experience?

You’ll want to get a sense for who the financial advisor typically works with and how long they’ve been practicing. Do they have credentials that demonstrate proficiency in the areas you need help with? This can be a great way to determine which professional is a good fit for your situation.

There are lots of financial advisor credentials out there and it can be hard to make sense of them all. Here are three certifications that require extensive experience, rigorous course work, and challenging exams:

Certified Public Accountant (CPA)

This license is common for financial professionals involved with the preparation of tax returns and audited financial statements. This expertise is important in financial planning matters related to business succession and estate planning to name a few.

Chartered Financial Analyst (CFA)

Financial professionals that manage pension funds or other large institutional accounts often opt for this credential. CFAs have expertise in risk mitigation, advanced research, and portfolio management.

Certified Financial Planner (CFP®)

This certificate is most common for financial advisors providing comprehensive personal financial planning for individuals and families. CFPs must demonstrate expertise in areas of investments, tax planning, insurance, and estate planning to name a few.

How Are You Compensated?

How a financial advisor is paid significantly affects the relationship. You should never shy away from this question. As a consumer, you have a right to that information. This should be a straightforward answer. If you are still unsure how the advisor is compensated, you should think twice.

You need to know whether you will be paying the advisor directly in the form of fees. This can be via an hourly fee where you receive an invoice or via a percentage of your investment assets. It might be a combination of the two.

Is the advisor receiving commissions for selling you various financial products? If the advisor says you won’t be paying anything because he or she receives commissions from financial institutions, this is a red flag.

This type of answer gives the investor the impression that there is no cost, which there most certainly is. This might be the most important of all the questions to ask a financial advisor.

 

What Is Your Investment Philosophy?

Some investment professionals actively manage investment portfolios. This means they are buying and selling (trading) within the portfolio on a regular basis. The performance of the portfolio is directly tied to the advisor’s ability to generate returns from the trading activity.

Other advisors favor a more passive approach. In this scenario, the advisor will select broad based index oriented mutual funds or exchange traded funds (ETF). This philosophy places more emphasis on asset allocation, low costs, and periodic rebalancing.

What Services Are Included Beyond Investment Management?

Some financial advisors focus on one area like investment management. Others offer more comprehensive services that cover financial planning, tax planning, insurance, planning for college, and estate planning.

If you only need help managing an investment portfolio, you should do just fine with someone who solely provides investment management. However, some financial professionals offer a variety of services and provide their services at no additional cost beyond the asset management fees.

How Will We Communicate and How Often?

How you communicate with your advisor is a huge factor. From virtual, or in-person, and sometimes a combination of both, not every method is a fit for each client. I know some advisors who are 100% virtual only and others that require in-person meetings.

The frequency of communication can vary significantly as well. Some follow strict calendars for appointments. Others are more flexible and base the frequency and type of communication on the needs of the client.

What Conflicts Of Interest Exist When You Provide Advice?

Conflicts of interest aren’t always as scary as they sound. What is more important is whether the conflicts are disclosed and to what degree they may affect the advice you receive.

Consider the following: Your advisor has been recommending a mutual fund to you over the years. That advisor received a higher level of compensation for doing so than if he or she recommended a better fund that paid less in compensation. Would you be disappointed?

What if your advisor was to receive a special prize or bonus for recommending a financial product? Wouldn’t you want to know that information before you made the decision to buy the product or recommendation?

What if your advisor recommends an investment that he or she is a partner in and receives direct financial benefit from your investment? You should know that information ahead of time.

Where Can I Find Independent Information About Your Record?

Now this is a question you’ll know ahead of time because I will provide the answer at the end of the article. However, the advisor should be forthcoming about the common search options available that are specific to the type of advisor he or she is. And remember, you’re not asking the advisor if he or she is crooked, so it won’t get awkward.

To be fair, customer complaints may be present regardless of whether the advisor was guilty of said complaint. What is important to consider is the frequency and severity of any items listed. An advisor with 10 years of experience will have interacted with possibly hundreds of clients. A couple of customer issues, depending on the severity, don’t necessarily mean the advisor can’t be trusted.

Disagreements happen between advisors and clients and when they aren’t resolved, they often result in complaints. However, if disciplinary history finds suspensions or a pattern of violations etc. you should think twice.

Here are some areas to search depending on the type of professional. To be sure, it is best to run a search in a variety of sources because some information may not show up in another.

Financial Industry Regulatory Authority (FINRA):

This regulator used to be known as the National Association of Securities Dealers or (NASD) and changed its name a several years back as the result of a merger of regulators. This is not a governmental regulator, but an industry regulator authorized by the United States Securities Exchange Commission (SEC). Financial advisors that are brokers and insurance professionals with securities licenses should show up here at Broker Check.

Securities Exchange Commission (SEC): 

This regulator is responsible for overseeing Registered Investment Advisors (RIA) and their respective Investment Advisor Representatives. RIAs will be under the jurisdiction of the SEC if they have assets in excess of $100 million. Those under that mark are regulated by the individual states. However, the SEC is still the place to go to review disciplinary history and disclosure information at Investment Adviser Public Disclosure.

Conclusion

With an ever-increasing number of credentials and certifications, it can be hard to sort through the alphabet soup. Whether you’re an experienced investor or just starting out, these questions to ask your financial advisor will ensure you find the right person for your situation.

Have you considered how a Certified Financial Planner™ can help you?

Schedule a call with me via this link!