Choosing the right financial advisor is one of the most important decisions you can make for your family’s financial future. Indeed, the right financial partner can help you navigate the complexities of your financial circumstances, protect the wealth you’ve accumulated, and achieve your goals and aspirations. Unfortunately, you may not be sure what the “right” advisor looks like. In this article, we’re sharing the most important questions to ask a financial advisor to help you determine if they’re the right fit.
Websites like NAPFA, Fee-Only Network, and CFP® Board’s Let’s Make a Plan can help you identify financial advisors near you who meet your desired criteria. Most financial advisors offer a free introductory phone call or consultation to determine if you may be a good match. During this meeting, it’s important to ask the right questions so you can make an informed decision.
Here are 15 important questions to ask a financial advisor before entrusting them with your money:
Question #1: Are you a fiduciary?
Not all financial advisors act in their clients’ best interest. In fact, only financial advisors that hold themselves to a fiduciary standard of care must legally put your interests ahead of theirs. On the other hand, broker-dealers, banks, and insurance companies typically hold their financial advisors to a less stringent suitability standard.
Of all the potential questions to ask a financial advisor, this one may be the most important. Keep in mind if the answer is “no,” the advisor may not be giving you advice you can trust.
Question #2: What are your credentials?
Good financial advice requires in-depth knowledge of financial planning issues and the ever-evolving investment landscape. Typically, a financial advisor’s relevant experience and commitment to ongoing education are good indicators of their level of expertise.
This includes any professional designations they may hold. For example, many consider the CERTIFIED FINANCIAL PLANNER™ certification to be the standard of excellence in financial planning. In addition, there are a variety of more specialized designations that speak to a financial advisor’s knowledge and skill set.
Question #3: How are you compensated?
In general, financial advisors are compensated in client fees, sales commissions, or both. Fee-only financial advisors are paid directly by clients—and only clients—for their services. This compensation structure helps ensure their interests are aligned with yours. For example, if the advisor charges a percentage of assets under management, their compensation only increases if your wealth grows.
Alternatively, fee-based or commission-based advisors may earn part or all of their compensation in sales commissions. In other words, these financial advisors may be more incentivized to sell products than give advice.
Of these 15 questions to ask a financial advisor, Questions 1-3 can help you determine if an advisor is qualified and ethical. The rest of the questions on this list will help you gain a better understanding of what your experience will be like as a client.
Question #4: Do you have any minimums?
Many financial advisors limit who they will accept as clients by setting minimums on investable assets, net worth, or fees. While this helps ensure their firm remains profitable, it also allows them to take on fewer clients so they can provide a more personalized experience.
If a financial advisor doesn’t have minimums, you may want to ask about their assets under management (AUM) and current clients. Low AUM may indicate that their business isn’t stable or sustainable, while too many clients may limit the amount of personal attention they can provide.
Question #5: What experience do you have working with clients like me?
Depending on your personal or financial circumstances, you may prefer to work with a financial advisor whose clients have similar financial planning needs. When your financial advisor has a thorough understanding of your situation, they can help point out your blind spots and anticipate future challenges.
Question #6: What makes you different from other financial advisors?
A financial advisor should be able to clearly state their value proposition—in other words, how they go above and beyond for their clients. For instance, some advisors offer their clients additional services, technology solutions, or conveniences like identity theft protection.
There’s no right answer to this question. However, asking it can help you understand how a financial advisor will value you as a client and what you can expect from the relationship long-term.
Question #7: Why did your last client leave you?
Ideally, any financial advisor you work with has relatively low client turnover. On the other hand, high turnover may be a red flag that warrants further questioning.
Alternatively, you can ask the financial advisor how their clients typically find them. If an advisor has built their business primarily through referrals, it’s typically a good sign that clients are satisfied with their service.
Question #8: What services do you provide?
Wealth issues often become more complex as your net worth grows. It’s important to work with a financial advisor who can provide or coordinate a range of services to help you meet your financial goals. For example, Milestone Asset Management Group offers tax preparation and tax planning services in-house, in addition to financial planning and investment management.
Question #9: Who supports you in your role?
It’s important for a financial advisor to have systems in place that allow them to focus on providing high-quality advice and personalized attention. For example, they may hire internal employees or leverage technology and outsourced solutions. Asking a financial advisor this question can help you determine how consistent the quality of service will be as they grow their business.
Question #10: Do you have backup if you’re not available or something happens to you?
Business continuity and succession planning are two important questions to ask a financial advisor. Some financial advisors address this issue by taking a team approach, while others select a clear successor. In case the unexpected occurs, you want to feel confident that your money and financial future remain secure.
Question #11: Will you consider my tax situation when making recommendations?
Your financial advisor should understand your entire financial picture before making recommendations, particularly when it comes to your investments. Otherwise, you risk potentially unnecessary tax consequences, which can offset your progress. A financial advisor should have the knowledge and resources to incorporate effective tax planning into your investment strategy.
Question #12: How frequently will we be in contact?
A recent Vanguard and Spectrum Group study found that four of the top five reasons investors fire their financial advisor are related to communication. Asking a financial advisor this question up front can help you avoid potential issues down the road.
In general, a financial advisor should meet with you formally at least annually to review your investment plan and progress towards your financial goals. However, life events and other circumstances may warrant more frequent contact. If nothing else, you should feel confident that your financial advisor will be available and responsive when you need them.
Question #13: What is your investment philosophy and approach?
A financial advisor should be able to clearly articulate their investment philosophy and approach to managing client assets. Ideally, an advisor follows a disciplined process that they apply consistently across market cycles. Understanding their philosophy and process can help you set expectations and stay invested, even when the market isn’t cooperating.
In addition, you may decide not to entrust all of your assets to one financial advisor. Be sure to ask what tools the advisor uses to analyze your entire portfolio of assets, even if they only manage of portion themselves.
Finally, you may also want to ask how the financial advisor selects and monitors client investments. At a minimum, the advisor’s selection process should minimize potential conflicts of interest, which can influence their investment decisions.
Question #14: How will you keep my money and personal information safe?
Cybersecurity and fraud are becoming increasingly important issues in the digital age. It’s natural to feel uneasy about sharing your personal information—not to mention your finances—with someone you just met.
Your financial advisor should be mindful of cybersecurity and have systems in place to protect client information. If you’re working with an independent financial advisor, ask who their custodian is and why they made that choice. In addition, you can ask what measures the custodian has in place to protect your assets and personal information. A financial advisor who can answer all of these questions clearly and confidently has likely taken the necessary precautions to protect their clients.
Question #15: What are your fees?
You may feel like this last question deserves to be at the top of the list of questions to ask a financial advisor. And understandably so. Fees are an important component of any discussion.
No matter when you choose to ask this question, make sure the financial advisor can clearly communicate their fees. Whether the advisor charges a percent of assets under management or a flat fee, full transparency is key. In other words, you should have a complete understanding of what you’ll be paying before committing to any financial advisor.
The Value of a Working with the Right Financial Advisor
“If you want to go fast, go alone. If you want to go far, go together.” -African Proverb
This list is not intended to be a comprehensive set of questions to ask a financial advisor. However, these questions can help guide your conversations so you can make a more informed decision. You’ll likely come up with a list of your own questions as you learn more about the advisor and their service model.
In addition, pay close attention to your overall comfort level and chemistry with the advisor during your initial conversations. Did you like them? Are they someone you feel comfortable talking to, and did they listen? Most importantly, do you trust them? If you’re still not sure, ask the financial advisor if they can share a few client references. Ultimately, you should feel completely confident that your money and future are in good hands.
Milestone Asset Management Group specializes in the financial planning needs of career-professionals and executives. If you’d like to see if we’re the right fit to help you reach your financial goals, please schedule an introductory phone call. We’d love to hear from you.