Visiting a financial advisor may seem intimidating, but a good advisor will teach you and steer you in the right direction without feeling like you’ve given up control of your money. You have several options for choosing a financial advisor, so it’s important to ask questions so you can properly vet their expertise, investment strategies, and how they get paid.
Before Hiring a Financial Advisor
A financial advisor helps you maintain and grow your savings. But before you hire a professional, it’s worth determining how exactly you want them to help you.
First, take stock of your current financial situation. Determine the total value of your assets and identify a few short- and long-term financial goals. If you just want assistance investing, a robo-advisor can help you for a minimal fee. If you’re considering retirement and want to grow your investments, you may want to work with a certified financial planner or registered investment advisor.
Get specific about your goals. For example, do you want help sticking to a budget? Do you need to create an estate plan or trust? How do you want to invest your money? Your answers to these questions will help determine what kind of financial advisor you need.
10 Questions to Ask Financial Advisors: Interviewing and Vetting
Interviewing potential advisors can help validate their experience and envision the working relationship. Ask these 10 questions before signing a contract or making an investment. If any answer makes you uncomfortable or raises a red flag, move on to a different firm.
Do I have to deposit a minimum amount in an investment account to receive financial advice?
Some financial advisors provide services with a flat or hourly fee with no other contingencies. However, many require clients to use the firm’s investment management services, so you’ll need to meet minimum asset requirements. If there are no pre-set minimums, you can invest more freely. Those who participate in investment management services may receive financial planning help for free or for a flat fee.
Are you a fiduciary?
A fiduciary is legally required under SEC law to recommend strategies that are in the clients’ best interests. Nonfiduciaries, such as broker-dealers, need only to recommend products that are “suitable”—even if they’re not the most affordable or ideal for your goals. Most fee-based advisors, and some commission-based advisors, are fiduciaries. Registered Investment Advisors (RIAs) and Certified Financial Planners (CFPs) are required to be fiduciaries.
How do you get paid, and what fees can I expect beyond your payment?
The fee structure will depend on whether the advisor is fee-based or commission-based. Most investment experts recommend choosing a fee-only advisor because they don’t get commissions for selling products and avoid conflicts of interest. Fee-based advisors are usually more expensive. Common fee structures include:
- Flat fees
- Hourly fees
- Percentage of assets managed (usually 1%)
- Commissions based on products sold
In addition to paying the advisor, you’ll incur additional fees, like mutual fund loads. Some firms figure these costs into the advisor fees, but most do not. This is also a good time to ask about the taxes associated with investing with their firm.
What types of clients typically work with you?
It’s best to work with a financial advisor who has experience working with clients who have lifestyles and goals similar to your own. Some financial advisors only work with high-net-worth individuals, while others work with small business owners, retirees, or young professionals.
What is your money management philosophy? In general, how do you plan for your finances?
It pays to be on the same page with your advisor about how to invest your hard-earned money. A professional advisor should feel comfortable working with your risk tolerance—especially during a recession or inflation. Ask what strategies they use to create a portfolio that performs well long-term and aligns with your vision.
Discuss how they determine recommended assets and proper allocations for each client portfolio. You can also inquire about the benchmarks they use to determine timely investments, like the S&P 500, for example.
What are your certifications and qualifications
Depending on their specialty, financial advisors might have several professional designations behind their names. Some common financial designations include:
- Certified financial planner (CFP)
- Chartered financial analyst (CFA)
- Retirement income certified professional (RICP)
- Registered investment advisor (RIA)
- Accredited investment fiduciary (AIF)
- Certified divorce financial analyst (CDFA)
- Financial risk manager (FRM)
Use The Financial Industry Regulatory Authority‘s professional designations database to research what they mean, who they’re accredited by, and an individual’s professional status.
How many clients do you have right now?
A financial planner with over 100 clients sounds impressive and experienced. However, a heavier workload can limit the time available to answer client questions or update plans.
Do you work with attorneys?
Experience working with an attorney is a valuable skill to search for if you need help with business or estate planning. An advisor willing to coordinate with an attorney or refer you to one could help you find the best candidate for your current and future needs.
How will we communicate and work together?
First, ask who you’ll be dealing with throughout your relationship. Will you work with one advisor, or will you shuffle between multiple advisors depending on availability. Then, determine how much communication (read: access) you’ll have with your pro. Pinpoint how often you’ll meet to discuss your investment options and whether you can call your email them outside of scheduled appointments.
How will you teach me about managing my finances and the investments you recommend?
The best financial advisors teach and guide you through the investment process. Only invest time or money in something you understand. Advisors that feel more like salespeople won’t be as patient with your questions, so be sure your partner with a professional who dedicates time to explaining their recommendations and puts you at ease before investing your money.
4 Questions You Should Ask Your Advisor Regularly
Once you’ve partnered with a financial advisor, you’ll meet with them now and again to discuss your portfolio. While some questions will be specific to your goals, there are several general questions you can ask to understand your investment progress. Arrive at your meetings with questions prepared ahead of time.
Is my investment strategy on track?
If investments are a large part of your retirement portfolio, ask for regular updates on its performance. Ask to see recent reports and have your advisor explain the projections over time. While some fluctuation is expected, you’ll want to ensure your investments remain on an upward trend.
Do I need to make any adjustments based on my goals and current economic conditions?
Your periodic check-ins are a great time to ask whether you should focus on certain aspects of your plan according to your goals and the macro economy. For example, if you’re sending kids to college soon or buying a home, you might want to adjust your investments.
Generally speaking, you should ask if you’re on track to reach your goals at all stages of your life. Long-term planning requires short-term action, and keeping the dialogue open can help ensure you are prepared for the future.
What does a realistic budget look like based on my finances?
Knowing how to budget each month will help grow your portfolio, but realistically, this might change as you move through life stages. Talk to your advisor about your plans (e.g., weddings, large vehicle purchases, vacations, a job change, etc.) and have them create a budgeting plan. If you experience a significant life change, book an appointment and discuss how the change might affect your investments.
What can we do to reduce my tax burden?
How you invest will affect your taxes each year. If possible, allow your advisor to discuss your situation with your tax professional. Your advisor can also make recommendations to minimize your burden each year, such as making a charitable contribution or claiming certain exemptions when you file your taxes.
Finding the Right Financial Advisor
Asking a financial advisor these questions ensures your money stays in good hands for years to come. Most people work with a financial advisor for several months or years, so interviewing a few financial advisors in your area is well worth your time to ensure you are compatible and trust the decisions they make on your behalf.