Essential Questions to Ask a Financial Advisor - Ensure a Strong Financial Future

Are you interested in setting financial goals for yourself or your family that will help you achieve your wealth and investment dreams? If so, a financial advisor can help. However, it’s important that you choose the right professional to help handle your situation.

Before making a decision, there are certain questions that you’ll want to ask a financial advisor. Having answers will help you ensure that your financial future is in the right hands.

Choosing A Financial Advisor

When choosing a financial advisor, you’ll want to start by thinking about your goals for the future and your current financial state. Knowing where you’re at and where you want to be can help you choose an advisor who aligns with your goals.

Although any financial advisor should be able to help a client set short and long-term money goals, each one varies in their specialty. Some advisors specialize in wealth management, some in investment strategy and others in credit. It’s important to choose the right advisor for your goals, and the best way to do so is to ask the right questions.

What Questions To Ask A Financial Advisor

Let’s go over 10 potentially useful questions to ask a financial advisor to help you determine if they’re the right choice before hiring them. 

1.     What Are Your Qualifications?

Financial advisors often carry a long list of abbreviated letters after their name and title. It can be confusing to navigate through these accreditations but it’s helpful to understand the basic definitions of these terms. Some of the most common financial advisor accreditations are:

• Certified Financial Planner (CFP): These individuals are accredited by the Certified Financial Planner Board of Standards and have completed educational training, passed an exam and have extensive financial planning experience. These financial experts can usually help you with a wide variety of financial needs.
• Chartered Financial Consultant (ChFC): ChFC is a financial planning certification issued by the American College of Financial Services that serves as an alternative to a CFP. There is some overlap between earning a CFP and a ChFC, but a ChFC allows advisors to receive slightly more specialized training than those with a CFP.
• Chartered Financial Analyst (CFA): These individuals are accredited by the CFA Institute. These advisors have logged substantial work experience in a variety of specialized financial services. They must pass a series of rigorous exams to earn this accreditation. Earning a CFA is sometimes a requirement to hold important investment-related positions at public companies or firms.

Beyond their accreditations, it’s also important to uncover what other qualifications make them the right candidate for the job. How long have they been a financial advisor? What do their clients have to say about them?

2.     Are You A Fiduciary?

A fiduciary financial advisor is someone who provides legal and ethical financial advice to their client while keeping the client’s best interests in mind. Because they handle the money and assets of their clients, a certain level of trust is needed with these relationships.

The SEC created this standard to ensure that fiduciaries uphold their duty: loyalty and care that puts the needs of their clients above their own. They must also clearly state any conflicts of interest that might arise so that the advisor’s ability to serve the client is never impacted.

A non-fiduciary, on the other hand, is someone who might only provide recommended products to their clients, rather than advice, even if these products are not the most affordable or best choice for them. Though many advisors will market themselves as a fiduciary, this may not always be the case. It is recommended that for your own interests you should make sure your financial advisor has a fiduciary responsibility to you – you should be able to ask them about this and get your answer in writing.

3.     What Are The Total Costs I Will Pay For Your Services?

Don’t hesitate to ask your prospective financial advisor how much their services will cost you. Simply asking them what their fees are, however, may not provide a fully accurate representation of the total amount or any additional costs that you may be paying to work with them. To get a better idea of what it may cost you to work with an advisor, look into their method of charging clients.

It’s common for advisors to use a variety of fee structures. You’ll want to ask your advisor which one of these structures they use to avoid paying any extra fees.

• Fee-only: May charge a flat fee for various services but does not receive commissions.
• Commission-based: Receives commissions for recommending products.
• Fee-based: Charges fees for their various services, but also collects commissions.

4.     What Services Do You Offer?

It’s important to consider what you’re looking to get out of your time working with a financial advisor. Do you need more comprehensive high-wealth advice, or do you have straightforward goals? What stage of life you are in and how strategic do you want to be? These are all important factors to consider when evaluating the services an advisor offers.

Here are some of the most common services a financial advisor will offer their clients:

• Retirement planning
• Creating a trust 
• Estate planning
• Tax mitigation
• Education and 529 savings plans
• Insurance protection
• Wealth management
• Charitable giving
• Business succession 

Knowing what services advisors offer can help you choose the right professional. Take note of these services during your initial consultation and compare them later on against other financial advisors you may be considering.

5.     How Often Will We Communicate?

When working with a financial advisor, you want to feel comfortable communicating as often as you need to. This is an important question to ask as you want someone that meets your needs communication-wise and keeps you up to speed on what you need to know. This individual is in charge of assisting you with major financial decisions, and that requires a level of trust unlike other professional services – so it’s important that you feel comfortable talking to your advisor.

Consider how many other clients they advise. This will help you gauge how busy they are and the level of dedication they will be able to provide. How often will they update you on changes with your plan? How often will you have scheduled appointments to check in on your goal progression?

6.     Are You Primarily A Financial Advisor Or Investment Advisor?

Although these two terms may sound similar, there is actually a big difference between these professionals. The Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) have defined these two titles as distinctly different roles.

• Financial advisor: Can assist you with a wide variety of personal financial decisions and goal setting. Many financial planners, brokers, accountants and other professionals can be considered financial advisors.
• Investment advisor: Deals largely with investing and stock brokerage decisions. This could be basic portfolio building or more high-level investment strategies. These professionals typically get more involved with your investment strategies than financial advisors, who might just create a plan or goal for you without helping personally carry it out.

7.     What Is Your Investment Philosophy?

If you’re interested in advice on the right investing decisions, you’ll want to make sure that your advisor’s investment philosophy aligns well with yours. Whatever the state of the market, you want your advisor to be making the best decisions possible for you. Will they stick it out when the going gets tough, or will they sell to make a quicker profit? 

Ask about the important considerations they take when making financial decisions on your behalf. You’ll want to know how they plan to diversify your portfolio, if they favor growth or value, types of investments they will make and the market timing they feel is right to invest.

There are other considerations to keep in mind as well. For example, there may be companies that do not align with your personal beliefs and values. Even if they were performing well in the market, it’s possible that you wouldn’t want to invest in them if you don’t believe in their morals or values. You should make sure that you trust someone and they understand your wishes and personal philosophies before allowing them to make decisions on your financial behalf.

8.     Where Will You Keep And Manage My Assets?

One of the most important things to ask your advisor is where your assets will be held. The best way to ensure that your assets are safe is by having them held by a major third-party custodian. Some of the most common custodians that advisors use are TD Ameritrade, Fidelity and Schwab.

Using a third-party custodian helps prevent advisors from gaining too much power and control over your accounts. These parties will also provide consumers with FDIC and SIPC insurance to further protect their assets and investments.

9.     What Resources Will I Have Access To When Working With You?

Depending on whether the individual works as an independent contractor or with an investment organization, the resources that you will have access to will vary. Financial decisions and the terminology around them can become complicated. Having access to financial educational resources and recent market news that can provide you with clarity can help you make more informed decisions and take better control of your future.

You should also inquire with your prospective advisor regarding what tools they have available in case you are unable to meet in person. Virtual resources or online portals where you can access your portfolios can be useful. 

10.  How Will My Performance Be Tracked As We Progress?

What does your advisor view as a success? How do they evaluate your progress? You’ll want an advisor who regularly tracks your progress against your short and long-term goals. A good advisor will be able to evaluate your progress against any changing market conditions or volatility. 

The Bottom Line

When choosing a financial advisor, it’s OK to be picky. After all, they are advising you on major financial decisions. Making sure that they are serving you with the best possible intentions will help you work together to create a successful financial plan. 

Ready to get started creating financial and investment goals for yourself? Read through our personal finance page for advice on how to take control of your future.