Questions to Ask Your Financial Advisor

When you hire a financial advisor, you are entering a long-term relationship with a person who will know almost everything about your financial life. It is nearly impossible to know who to trust. It’s a challenging subject for us and one that we take very seriously as we develop and expand on our firm’s own best practices. We believe it is even more challenging for investors. Hence the importance to carefully vet potential candidates. To protect yourself and your money, here are some essential questions to ask your financial advisor before making your next move. 

Are You a Fiduciary?

This maybe the most important question to ask a potential financial advisor. Their answer to this question can help determine whether the potential financial advisor has your best interest at heart. A fiduciary financial advisor places the interest of their client before their own. If they are fiduciary, they freely disclose their fees and how they are compensated. They also disclose potential conflicts of interest that might influence a client’s decision to use their services. A non-fiduciary financial advisor (broker), on the other hand, can receive a commission for selling an investment or invest  you in a sub-par investment (think under performing long term, high fees, illiquid)  that is not in your best interest and they do not  need to disclose it to you.  If you're currently seeking advice, think about it - has your advisor offered you a fiduciary pledge in writing?

What is Your Investment Approach and Philosophy?

There is not one accepted approach or philosophy when it comes to investment. Different professionals follow different approaches and philosophies. Ask the financial advisor to describe their approach and philosophy in simple terms that you can easily understand. An investment philosophy can be described as a set of guiding principles underlying the process of choosing an investment in a given situation. While they might not disclose their personal information, they might be willing to share the strategies they use to succeed, and they might use the same approach for your portfolio.

How Much do You Charge for Your Services?

Some financial advisors get paid a commission for selling a product, others get paid a fee while others charge a percentage of the assets under management. The answer to this question not only helps you know how much the service will cost you, but it will also help you determine if they have a hidden incentive to sell you a product. 

If your advisor is receiving commissions from third-party sources, suffice it to say he or she is exposed to conflicting incentives to recommend particular products or transactions that may not be in your best interest. In addition, these conflicts and their resulting costs (which silently drag on your returns) often remain undisclosed to you.

A transparent, fee-only arrangement is preferred. First, you can clearly see what you’re spending in exchange for what you’re receiving. Second, if your advisor’s only compensation comes from you, it enhances his or her ability to offer the impartial, product-neutral advice you deserve.

What Services do You Offer?

Every person has different needs, what might work for another person might not work for you. The answer to this question will help you make sure that the advisor aligns with your needs. Some financial advisors are just investment advisors, and they will only offer you advice on your investments. Therefore, they would not be the right fit for you if you are looking for comprehensive financial planning around tax planning, insurance, retirement and estate planning. Go with a professional who offers services that suit your unique needs.

How do You Measure Success?

A financial advisor should be in a position to measure their success based on how the plan is progressing compared to goals that their clients set up. They should share how your portfolio is performing against a benchmark that depends on the client's risk tolerance and their timeline. If the performance of your portfolio is slightly off track, they should be willing to work with you to come up with a strategy that will get it back on track.

By hiring a financial advisor, you are entrusting them with your money and the future represented by that money. Asking the above questions at the beginning of your relationship will help you decide if the potential advisor is one you want to work with.