Six Questions to Ask a Financial Advisor

Six Questions to Ask a Financial Advisor

Most people have no idea how to interview a financial advisor.  So, to keep this as simple as possible, I’ve put together a concise list of six questions you should ask your current advisor or prospective advisor if you’re in the process of interviewing a few.

Are you a fiduciary? 

This is a simple yes or no question, and the answer is critical.

Advisors operate under one of two “standards of care”.  Fiduciary or Suitability.  If they are a fiduciary, then this means they are required to act in your specific best interest.

If they abide by the suitability standard, then they are required to propose recommendations that would be suitable for someone in your general situation (not you specifically).

If your advisor is not required to act in your best interest, move on.  There are far too many good advisors that are fiduciaries to waste time with those that are not.

What is your investment philosophy? 

Do they use actively managed funds?

Do they invest in individual stocks and bonds?

Do they invest in passively managed funds?

Are the allocations custom per client or do they use models?

If it’s up to me, I’d look for an advisor that utilizes models investing primarily in index ETFs (i.e. Vanguard) and perhaps some Dimensional Fund Advisors (DFA) funds.

What areas of planning will you provide guidance and strategies for? 

Here are some planning topics that you should expect to hear if they are a comprehensive planner:

  1. Retirement Planning
  2. Long-Term Care Planning
  3. College Planning
  4. Estate Planning
  5. Legacy Planning
  6. Tax Planning

How do you charge and how much? 

If they earn commissions of any sort, they cannot truly be abiding by question #1.

What are the options besides commissions?

  • Most will simply charge an asset-based fee.  An example of this would be an advisor that charges 1% of assets under management.
    • This is a tricky one, and here’s why:  There are advisors that charge 1% and that fee is a total rip-off and there are advisors that charge 1% and the value to a client is an absolute bargain.  It comes back to what are you getting for what you are paying.
  • Some will charge a planning fee separately from asset management.  This is a fee in which you will write a check directly to the firm or advisor.
  • Some will charge a planning fee and an asset-based fee.
  • A few will charge a flat-level fee that is inclusive of all planning.

If I become a client, how often should I expect to hear from you and how often will we meet?

This is pretty straightforward, but if you’re somebody who likes a lot of handholding, you’ll want to be clear about your expectations.  In any case, you’ll want to know that they have a process for meeting people on a regular basis.

What is your backup plan if something happens to you?

Advisors occasionally leave the industry via career change or retirement.  As a client, you’ll want to know what the plan is in case they become unable to serve you for any reason at all.

By asking the above questions, you should be able to identify a possible fit.  The advisor’s conversational tone and approach should offer insight as to whether you are a good fit from a personality perspective and communication style.  Their philosophies and processes should answer the questions about all the technical aspects of their approach.

Finding out if you’re a good match in advance of discussing specifics is a much better approach than starting with a  second opinion on your portfolio.

2 Replies to “Six Questions to Ask a Financial Advisor”

  1. I agree with all of these points, especially the “what happens if you hit the lottery?”

    I am a big fan of financial advisers and have two that help me with my finances. I enjoy my 9-to-5, but don’t need to be bothering with keeping up with the market fluctuations, having the right beneficiaries in place, connecting the dots for investing today and linking it to tomorrow, estate planning, etc etc.

    Well worth the cost, if you ask me.

    1. Church, Thanks for the feedback. I think that people that have had good experiences with advisors are fans for the reasons you note. It’s people that either have no experience or even more so a bad experience that are so determined to DIY. I can certainly understand the latter group. Nothing wrong with DIY as long as you can keep up with everything you noted and are willing to put in the work. Most people say they are but then don’t.

      Btw, I checked out your blog as well, looks like a fun read. I wasn’t able to find a way to sign up for your email list. Do you have one? Consider signing up for mine too. Thanks again and enjoy the weekend!

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