Choosing a financial advisor is an important decision. To ensure you’re working with someone capable of guiding you to success, it’s essential to ask the right questions. Asking the right questions will help you evaluate how well a financial advisor can help you meet your financial goals while supporting you throughout the process. Knowing the right questions to ask your advisor can make the difference between financial growth and missed opportunities.
The following are some of the most important questions to ask a financial advisor to help you gauge how well they can work to meet your goals and expectations.
#1: What Qualifications and Certifications Do You Have?
Before going any further, one of the most important questions to ask a financial advisor is about their qualifications. They must be able to show that they have the financial education and necessary certifications to help you.
Many financial professionals have numerous initials behind their names that make them seem legitimate, but you should know some of the differences. If the person calls themselves an investment advisor or a certified financial planner, it is critical that you verify this information.
- Chartered Financial Analyst (CFA): This destination means they have deep knowledge of asset management and securities analysis. Many will have high-level research and analysis skills used for financial companies and investment firms, though others work with high-net-worth clients. They can offer portfolio management, risk management, and investment advice.
- Certified Financial Planner (CFP): This person has an all-encompassing skill set that includes financial planning from the perspective of retirement planning as well as for budgeting, life insurance, tax management and reduction, and overall estate planning. They act as fiduciarties, which means they provide advice to clients based on what is best for the client.
- Chartered Financial Consultant (CFC): This person’s job is much like a CFP, by providing personal financial management support, tax management, estate planning, and special needs planning services. The chartered financial consultant certificate is a bit more work than a CFP.
- Registered Investment Advisor (RIA): This is usually a company, not a person, and it does not mean they have the same qualifications as a financial advisor. However, they are registered with the Securities and Exchange Commission or a state regulatory agency to provide services. They will work to provide financial planning and investment services to clients.
If you are unsure what the designation behind a financial planning professional’s name is, ask them, or you can look up the definition and requirements on the FINRA.org website.
#2. How Many Years of Experience Do You Have as a Financial Advisor?
Experience matters for many reasons. When hiring a financial advisor, you are putting not just your investments from this year into their hands to manage but also your financial future. You need to know that the person you hire can manage investment strategies appropriate for you across a changing playing field. That is, the economy will change, political risk factors will impact your investments, changes in your goals and finances can also play a role, and the type of assets available may change.
Choosing personal financial advisors who have an in-depth level of experience that spans a variety of economic conditions and lifestyle changes is invaluable. You want to know that, when circumstances change, that they have the fortitude and experience to help you adjust your investment portfolio in the most meaningful way.
Are you looking for a professional who can help you with today’s challenges? Ask a financial advisor now about the options best suited for you in today’s climate. You can get matched with a financial advisor using Invested Better now. The tool takes just a few minutes to use and helps you find an investor that fits your needs.
#3. Explain Your Investment Philosophy.
One of the questions to ask a financial advisor that could influence your decision-making is about the professional’s investing philosophy. If you do not believe in their investment strategy and philosophy, you are not going to feel comfortable with that advisor. Your financial advisor’s job is not to do what you say they should do. Instead, it is to analyze your circumstances, risk tolerance, and goals and then build strategies that can produce the best possible results for you.
Relying on your financial planner is critical (that’s what you are paying them to do). If you do not like the type of investment they are doing, who they are investing in, or their financial investment management style, you should not work with them. When you ask this question, you can discuss:
- How do they invest in the stock market – what types of companies do they see as being desirable?
- Do they invest in impact investing? Do they encourage alternative investments?
- Are they focused on just mutual funds?
- How do they feel about asset allocation at your age right now and in the next 10 years or 20 years?
- When do they make financial decisions? Are they going to react right away to changing market conditions or ride out the ups and downs?
During the interview process, really get into the advisor’s approach, ideas, thoughts, and beliefs. Then, ask about their success in these areas.
#4. How Do You Tailor Your Advice to Fit Clients’ Financial Goals and Risk Tolerance?
Alongside understanding their philosophy on investing, you also must consider how reasonable they are in working within your own objectives and goals. If you are a novice just getting started, you may not have a lot of specific needs or goals – you want to rely on their experience. On the other hand, you may have very specific objectives and want the professional to offer personalized financial advice based on those goals.
No matter where you are, you also want to choose a financial advisor that is considering:
- Your income and expenses
- Your lifestyle and what is important to you, personally
- Your overall financial health now
- Your investment style (or the building of one)
- Any specific concerns you have about risks
#5. How Do You Select Investments For Your Clients?
At the heart of making decisions to support your financial goals, financial advisors must be able to understand what your needs are. That means that most financial advisors will start by assessing your risk tolerance or capacity for risk. This enables the investment to gauge what is most important for you from all perspectives.
Talk to the advisor specifically about the following:
- Their fiduciary duty to you: They should be providing information based on what is best for you, not any underlying benefit they may receive from others.
- Diversification beliefs and strategies: Discuss the investment philosophy of the advisor based specifically on how they diversify portfolios.
- Managing your financial journey over time: reaching key investment benchmarks is important, but your life is likely to change over time. Does the advisor offer financial products for all stages of life?
Having a conversation about how the financial advisor chooses investments based on risk, past performance, company insight, and overall risk assessment is key to making the best decision for you.
#6. How Will You Rebalance My Portfolio Over Time?
Rebalancing your portfolio enables investors to gain the most ground over time as circumstances in the market, economy, politics, and other areas change. To rebalance a portfolio, the advisor must adjust the weightings of various asset classes within your portfolio, again, based on risk tolerance and objectives.
This is done by buying and selling assets based on your specific objectives. For example, a financial advisor may sell one asset to purchase another, or may allocate additional funds to bonds, stocks, mutual funds, or another area based on the current climate and conditions.
One of the questions to ask your financial advisor, then, is what helps them make these decisions. What do they use to evaluate risk and adjust based on a changing climate? What resources and technology do they use to monitor individual stocks or estimate future results? You certainly do not want an investment advisor who is basing their decisions on their gut. Instead, find out what benchmarks they use, such as Standards & Poor’s 500 (S&P 500).
#7. What Services Do You Offer?
This is one of the best ways to gauge the value of a potential advisor for your needs. A good advisor offers robust services to meet each one of your needs, but also is not going to encourage you to use services you really do not need or that may not be in the best interest of your portfolio’s health.
Core services you may wish to consider seeking out in a professional include:
- Existing wealth management
- Tax planning and reduction
- Mutual funds, stocks, bonds, and alternative investments
- Financial planning services for retirement
- Estate planning services
You may have other objectives as well. For example, you may want to know if they offer robo advisor services or if they can help you with budgeting and getting out of debt so you can invest more in retirement planning.
Finding the right advisor means asking a lot of questions about future results. To make sure the company or advisor you hire has your best interests ahead, utilize our free advisor match tool to gain insight into who may be best suited for you based on the services and products you need.
#8. How Do You Charge for Your Services?
Hiring a financial advisor means you will pay for the investment management and financial planning services available. However, there are several different methods of compensation across the financial services industry. You will want to know about all that are applicable to this advisor.
- Flat fee: In some situations, a flat, fixed fee charge monthly, quarterly, or annually applies.
- Hourly fee: For those who may not need a significant amount of help, an hourly fee could be one method financial advisors offer. If you are using robo advisors, for example, hourly fees paid to an actual financial advisor could be helpful.
- Fees based on performance: In some situations, you may want to set up a relationship where the management fee is based on investment returns. A performance fee only could be ideal for some scenarios.
Most importantly, know what your all-in costs are. These are all fees associated with the transactions and services you are purchasing. Remember that fees may reduce how much you are saving over time. Consider any annual fee or even hidden fees the organization may not be upfront about.
#9. How Often Do You Communicate with Your Clients?
Both how often and the method of communication between the financial advisor and client determine how well a professional fits your needs. Open communication is a must in all scenarios. This could include:
- In-person meeting frequency
- Virtual check-ins and updates
- Specific events or opportunities, contact immediately when needed
- Regular market updates on a monthly or quarterly basis
Every investor is a bit different. What is most important here is to make sure you and your planner are on the same page and that your planner can provide clients with the communication method preferred.
#10. How Often Will We Review My Financial Plan and Investment Strategy?
Your financial advisor should establish some benchmarks with you. You need to understand how they will then track the investment performance including for short- and long-term goals.
With that information, they must then consider what steps need to be taken to update strategies to continue to achieve goals. Determine:
- When the financial advisor will monitor your accounts on a routine basis
- What type of software or tools are the financial advisors using to flag the need for updates?
- When will you review your financial plan with the advisor (quarterly, annually?)
- When will you be alerted to poor investment performance, and what steps will be taken to rectify it?
- What updates are included or available through the wealth management services provided by the financial advisor?
Final Thoughts on the Questions to Ask a Financial Advisor
There are additional questions you have. You may have very specific concerns or you may not be sure where to start. You should always feel comfortable in asking those questions during an initial meeting, even the tough questions. If not, that may not be the financial advisor for you and it could create conflicts later.
Instead of risking it, take the time to find a financial advisor you know is behind you. Invested Better makes it simple and straightforward to create the financial future you want because it helps you find the best advisor to partner with on your road to better retirement.
