15 Questions to Ask a Financial Advisor in 2023
Hiring a financial advisor can be one of the best things you do for your financial well-being. Financial advisors are qualified professionals with the relevant expertise and experience to guide you on fundamental financial decisions. They can help you create an investment plan, balance risk and return, understand the tax implications of your investments, develop an estate plan, assist in business succession, and a lot more.
There are several types of financial advisors based on their fee models, such as fee-based and fee-only. Financial advisors may also differ based on the clients they handle. For instance, professionals who work with individuals with a net worth of more than $1 million are referred to as wealth managers. Likewise, you can also choose between a human financial advisor and a Robo-advisor. The latter primarily uses digital algorithms to manage your investments. The right choice between all these financial advisors can be made on the basis of your needs, budget, and of course, wealth and concerns.
No matter who you choose, it is essential to establish the right rules for your engagement. This can be done by asking relevant questions. These questions can help you convey your concerns, understand your financial advisor's investment style and approach, clarify any doubts, and create a comfortable working relationship.
If you are wondering what questions to ask a financial advisor, here are 15 questions to consider:
1. What is your preferred style of payment?
Most investors refrain from hiring a financial advisor to avoid paying the fee. Hiring a financial advisor can be seen as an expense. However, it can considerably transform your financial plan and allow you to achieve your financial goals in a more streamlined manner. If you are concerned about the costs of hiring a financial advisor, one of the questions to ask your financial advisor can be about their payment model. Some financial advisors charge a fixed fee based on the services they provide, while others can charge a percentage of the investments/assets they manage. You can also find financial advisors at an hourly rate if you do not want a long undertaking. This can be ideal if you are testing the waters and want to gauge the professional's acumen, work ethic, etc., before entering into a long-term association. Make sure to ask and understand the fee model in detail and pick a financial advisor who can comfortably align with your budgetary constraints.
2. Are you a fiduciary?
A fiduciary is a person who is legally obligated to act in the best interests of the client they work with. If you hire a fiduciary, you can secure yourself from the professional taking advantage of you. The critical thing to note here is that not all financial advisors are fiduciaries. Therefore, you should always ask them before hiring them to ensure you have complete information on their qualifications and certifications. You must also ask them what they include in their fiduciary duties.
3. What services do you offer?
Another one of the questions to ask a financial advisor is about their services. Financial planning is a broad concept with several components like budgeting, retirement planning, debt management, tax planning, estate planning, investment planning, etc. You may require a financial advisor to lower your tax liabilities, plan for the higher education expenses of your child, ensure enough savings for healthcare, purchase a house, or minimize debt, among several other things. You may also need their assistance in understanding the minute details of your investment choice, such as the expense ratios, contribution limits, income limits, etc. It is advised to understand the scope of the services a professional offers to ensure there is no doubt or disagreement later.
4. What are your certifications?
It can be hard to gauge the merit of a financial advisor. In today's world, where advertising and reviews can be manipulated and misleading, one of the ways to ensure you pick someone trustworthy and reliable is by checking their qualifications. This gives you an idea of their competence and whether or not the professional will be able to provide you with sound advice and guidance. There are several certifications, such as Certified Financial Planner (CFP), Registered Investment Advisor (RIA), Chartered Financial Consultant (ChFC), and Personal Financial Specialist (PFS). You can keep an eye out for them and ask the professional which of these they are certified with.
5. How long have you worked as a financial advisor?
While it is often said that past performance is not a measure of an investment's future growth potential, it can still offer investors some insight and help them make better investment decisions. The same can be said for a financial advisor. The number of years of professional experience can help you find out more about the financial advisor. The longer someone works, the more information they have about the industry. It also offers them more confidence and, in some cases, a sixth sense about how things are likely to pan out. Experience can be powerful in the world of finance. And hiring someone who has been around for some time can be an asset.
6. What type of clients do you work with?
While the financial advisor may not like to divulge information about their other clients, you can ask them basic details about the income groups, professions, or age groups their clients belong to. This can help you identify whether or not you would be a good fit for the financial advisor and vice versa. If the professional is currently working with or has worked with people in the same age and income group as you, you can rest assured knowing they have some experience dealing with similar financial concerns as the ones you have.
7. What is your investment approach?
It is essential to work with someone who sees eye to eye on matters with you. Some financial advisors may follow an aggressive investment approach that may or may not align with you. Therefore, it helps to clarify these things and understand what the professional can bring to the table. For instance, do you believe in impact investing, are you focused on appreciation or conservation of wealth, do you recommend alternative investments, are you inclined towards international markets, etc.?
8. Do you work alone or with a team?
Some financial advisors work alone on a one-on-one basis with their clients. In this case, all communication takes place between the client and the financial advisor with no interference from a third person. This also means that your personal financial advisor will be solely responsible for the advice or recommendations they offer. All your meetings will take place with this individual, and your payments will go to them. They will be the ones you reach out to in case of doubt, concern, or assistance. However, in some cases, you may be working with a team of financial advisors. In this case, you would be engaged with a number of people who would collectively recommend investment options, monitor or track your finances, and meet you for catch-ups and reviews. This means you could be in touch with more than one person and will have hybrid or diverse advice on some matters. Each of the two options has its merits and disadvantages, and you can choose any one based on what you feel is right for you. However, it is vital to find out how the professional works in advance to avoid confusion after signing a contract.
9. How often will we meet to review my finances?
Financial advice is never a one-time process. It is dynamic and can involve multiple rounds of meetings, discussions, reviews, and questions. Therefore, the topic of communication is one of the most important questions for your financial advisor. You can ask them if they are open to frequent meetings. You can also ask them the method of communication they follow, for instance, emails, messages, video calls, in-person meetings, etc. It is also essential to establish a frequency for communication. For example, once a week, twice a week, five times a month, or whatever you see fit based on your situation, goals, and the immediacy of the problem.
10. What investment benchmarks do you follow?
A benchmark is like a threshold against which the performance of an investment is measured. Financial advisors may use a benchmark to understand how an asset has profited or suffered losses. Benchmarks play an essential role in picking out investments and tracking their gains. Some common examples include Dow Jones Industrial Average, S & P 500, Wilson 5000, and the Russell 2000. A financial advisor may use different equity, fixed-income, commodity, or even cryptocurrency benchmarks. Asking them about their preference can help you align your goals appropriately.
11. What are your areas of expertise?
Even with multiple certifications, a financial advisor may have specific areas of expertise. Some professionals may be good at tax, others at investment planning. Asking them about their precise areas of interest and expertise can help you pick the best personal financial advisor for your unique needs and situation. For example, if your primary goal at the time of hiring a professional is to get rid of debt, you can look for someone who specializes in debt management and reduction. Likewise, if you are looking to retire from your business, you can hire someone who is an expert on succession planning and can help you create a solid business succession plan for your company.
12. Can you create a sample financial plan for me?
A sample financial plan is a basic plan that a financial advisor can create for you before you hire them. You can ask the financial advisor to create a plan for you to minutely evaluate their competence, investment philosophy, choice of investments, and style of working. Not all financial advisors may agree to this, but most would be willing, and it may be advised to ask anyhow.
13. Will you sign a contract?
It is highly recommended to sign a contract with a financial advisor that has transparent terms and conditions, including the payment structure, the fee, the frequency of meetings, the services included, the add-on services offered by the professional, the duration of the contact, etc. Many a time, you may discuss these details in a meeting but may not see them materialize later. Putting things on paper establishes legal liability and ensures the professional holds their end of the bargain. Considering how complex and delicate financial matters can be, signing a contract can offer you a better level of protection. Hence, remember to ask the personal financial advisor for a contract.
14. Is my information safe?
One of the crucial questions to ask a financial advisor is about the safety of your personal and financial information. You must know what the professional does with your information and if they share it with someone else. This is especially important if you are working with a team of professionals. You can talk about your concerns and mention the capacity in which your information can be used or shared. Establishing the correct security protocols from the very start is vital to protect yourself from fraud and scams.
15. Why should I work with you?
You may have seen employers asking an employee this question in an interview. Since you are also going to hire a financial advisor, it makes sense to ask them what they bring to the table and why you should be choosing them from a pool of other qualified professionals. This will help you get to know them better, identify whether or not they stand out in the crowd, and how committed or thrilled they are to be a part of your financial planning journey.
There is no end to the number or kind of questions you can ask a financial advisor. The ultimate goal of the exercise is to satisfy yourself and address all your concerns. Hiring a personal financial advisor is an important step that can change the course of your financial future in many ways. Picking a suitable advisor will ensure you do not have to worry about small and big issues and can be more relaxed. It will eliminate financial stress and anxiety. If your financial advisor is not able to answer these questions up to your expectations, it may be better to look for someone else.
Use the free advisor match service to choose a qualified and competent financial advisor who fits your budget and is ideal for your requirements. All you have to do is answer a few simple questions based on your financial needs, and the match tool will help connect you with 1-3 advisors that are best suited to meet your financial requirements.