10 Questions to Ask Your Financial Advisor
Your financial advisor works with you to create the future you want and a legacy you can be proud of. Yet, many people never think to ask some critical questions that could save them money, earn better portfolio returns, and provide added financial security in the long run.
Your financial health can be just as important as your physical and mental health. You are investing in your future, and it's crucial that you understand what your advisor is doing for you. You need to know what you are paying for and why. You should feel confident that you are truly making the best possible choices for your money.
We've compiled a list of the top 10 questions you should ask your financial advisor.
If you're looking for a new financial advisor, take these questions with you to the first meeting. If you currently have a financial advisor, book a call and ask them these questions. They could start a very fruitful conversation.
1. WHAT ARE YOUR FEES?
How do you get paid? Do you get paid differently based on the products you sell?
Online brokerages and banks are busily promoting low fees! No fees! Retire wealthier! This all sounds good, but do you understand the differences in costs and how your advisor's fees are structured? What are you getting for these fees?
Fees are broken into two parts: the portfolio's cost and the fee to manage the portfolio. You're paying for the product and the advice.
For example, Advisor A offers a 1.5% fee on a low-cost portfolio of, let's say….0.25%, and Advisor B offers a 2%fee on a portfolio that costs 1%. Advisor A is less expensive, correct?
Not necessarily.
Advisor A's advice costs 1.25% (1.5% - 0.25%), while Advisor B's advice costs 1%. Do the services that AdvisorA offers outweigh the services that Advisor B offers? If Advisor A is a bank or an online trading portfolio, they often don't include any additional services. You're just getting the product and paying a flat management fee.
Advisor B, however, may offer access to tax planning and estate planning, regular portfolio reviews, follow-up meetings, and more.
Who offers you more value?
Ask to see the breakdown of fees for each product. Ask if your fees are tiered based on the size of your portfolio. If your advisor isn't forthcoming with this information, that should be a red flag.
Another factor to consider is how an advisor gets paid.
Aside from commissions, advisors may get other financial or non-financial benefits if they sell certain products. For example, if they sell a specific set of products endorsed by their firm, they can access services inside the firm or receive additional bonuses. You want to be sure your advisor suggests the right products for YOU, not what gets them the best rewards.
2. WHAT SERVICES WILL YOU PROVIDE FOR THE FEE I'M PAYING?
Ask your advisor for a list of services so that you can compare them (and the fees) between potential advisors.
Are you paying for just fund management, or are there additional services? Do they offer genuinely personalized financial planning designed for your needs? Will they meet with you regularly to re-balance your portfolio and review key policies? Do they offer insurance planning, estate planning, or tax planning? If you're self-employed or a small-business owner, can they also integrate your business planning?
3. ARE YOU LICENSED IN INVESTMENTS AND INSURANCE?
This is an important distinction because investment products and insurance products can often be in direct competition with each other, and there can be a conflict of interest for the advisor.
For some clients, life insurance policies make the most sense. For others, it may be more beneficial to have one insurance policy and additional investments.
Some people have both an investment advisor and a separate insurance advisor. They may get conflicting advice from each party.
Insurance policies often pay commissions per policy, whereas investments pay commissions over the life of the investment. Selling multiple insurance policies vs additional investments can be very attractive to an advisor.
An advisor licensed in both investments and insurance brings both sides of the equation together and can offer you more rounded portfolio advice.
4. DO YOU WORK WITH A TEAM OR IS IT JUST YOU?
The potential complexities of financial planning can be vast, and no one can be an expert in everything. Does your advisor work with a team? Who are they? How extensive is their network of partners and their variety of expertise? Once you understand the available professionals, the next step is to know how everyone gets paid, by whom and if there are conflicts of interest.
Ideally, your advisor has a list of professionals with whom they work regularly. Their network could include lawyers, accountants, tax specialists, bookkeepers, and insurance specialists.
Lastly is the understanding of how you will incorporate these relationships into your overall plan. Will you simply be given names of people to call, or will your advisor act as the quarterback on your behalf?
A good follow-up question is how do the partners work together? Who oversees all the moving parts? (Remember the fees questions from Question 1? This is where the overall management fee comes into play.) Will your advisor help you make sure all the pieces are complete and coordinated?
5. HOW LONG HAS YOUR AVERAGE CLIENT BEEN WITH YOU?
If your advisor has long-term clients, they are providing good value and support. Watch for advisors with a high turnover rate, especially if they've been in business for many years.
6. WHAT ARE YOUR DESIGNATIONS? WHAT KIND OF ONGOING EDUCATION DO YOU PARTICIPATE IN?
You wouldn't go to a doctor or a dentist without a professional degree. Why not treat your financial "health" the same way? Your advisor should have at least one professional designation, and you should ask what this designation is and how it benefits you, the client.
Are they a fiduciary or designated as a portfolio manager? If so, they have a legal duty to represent your best interests. A good advisor will do this regardless, but some clients find extra comfort from having this legal requirement.
Ask how your advisor stays up to date on developments and practices in the industry and stays informed about new laws and policies. Most professions require ongoing education, and your advisor should be able to tell you about their professional development experiences.
7. WHAT IS YOUR APPROACH TO BUILDING PORTFOLIOS AND CHOOSING THE INVESTMENTS WITHIN THEM?
Would you start a journey without a destination? Does your advisor want to understand your needs and objectives thoroughly? How will your advisor get to know you and your goals? How will they then use that information to build a plan that suits you?
8. WHAT IS YOUR PROCESS TO BRING ON A NEW CLIENT?
Choosing the right person to manage your money and guide your financial plan is a huge decision. You want to be sure they have a structured process of bringing on new clients that ensures you are both a good fit for each other.
A good advisor will want to meet two or three times to get to know you before you agree to work together. They should also want to meet with both partners in a relationship, even if only one is investing with them.
Why?
Your financial advisor is one of the first few people your partner will need to call when you pass away. That's not the time for them to start to get to know each other. Your partner needs a relationship with your advisor, too.
9. HOW FREQUENTLY CAN WE EXPECT TO MEET AND WHAT AREAS WILL BE COVERED?
Discussing your portfolio's return is just one part of your overall financial plan. Other areas that should be addressed regularly would include existing insurance policies, estate planning needs and strategies, wills and powers of attorney, to name a few. Reviewing your retirement plan should occur at least annually to ensure you are on track or make any necessary adjustments. These annual meetings should include both partners.
10. ARE YOU A GOOD FIT FOR ME?
This is a question only you can answer. Do you feel confident in their answers? Do their values and ideals align with yours? Would you feel comfortable discussing personal financial decisions with them?
Do they match your mental checklist? If two advisors seem equal on paper, which one do you feel will represent you the best?
This is by no means an exhaustive list, even though it may appear exhausting! More questions will come up in your discussions with potential advisors. More questions may come up as you talk about this with your partner. Write them down or store them on your phone. Ask as many questions as you need to. It's your money.
Choosing the right financial advisor is an essential part of your financial planning. We hope these questions will help guide your conversations, so you can feel confident in your choice of advisor and be well on your way to a solid financial future.