Don't Forget to Share This Information with Your Financial Advisor

While a financial advisor can provide several benefits and significantly contribute to your financial well-being, it is crucial to maintain transparency and honesty with them regarding your goals, concerns, financial situation, debts, etc. Transparency forms the foundation of your working relationship with your advisor and aids them in understanding your needs better. There are several important aspects that financial advisors need to know before they can provide you with personalized and relevant advice.

Meeting with a financial advisor for the first time is a pivotal moment, and you must make the best use of that time by providing honest, comprehensive, and accurate information.

What information should you share with your financial advisor?

Every investor’s needs are different, and so are their concerns. Therefore, there are several aspects your financial advisor would like to know about you. Here are some common factors that apply and should be shared with an advisor:

1. Important financial documents

When you start meeting with a financial advisor, typically it is important to prepare your essential financial documents. These prepared documents offer the advisor insights into your assets, investments, and financial status. Thus, providing them with a comprehensive view of your financial standing. Moreover, this information helps the financial advisor understand your preferences for certain investments and identifies gaps in your financial strategy. They provide the advisor with crucial information about one of the most important aspects of your financial profile - your income. Based on these documents, the financial advisor can determine your net income, which serves as a foundational piece for recommending suitable savings and investments, as well as devising appropriate strategies to achieve your financial goals.

Among the documents commonly requested when meeting with an advisor are your most recent federal tax returns, pay slips, year-end bonus slips, 401(k) and Individual Retirement Account (IRA) statements, Social Security statement, insurance policy documents, documentation of mortgage, property tax payment slips, and bank statements. Each of these documents plays a vital role in painting a complete picture of your financial status and enables the financial advisor to offer tailored guidance and strategies aligned with your goals and aspirations.

2. Your present and future financial goals

While your documents provide your financial advisor with an overview, they would still need a bit more personal information about you in order to track and monitor your finances effectively. Often, people are very different in person than they seem on paper. Therefore, you must share your financial goals with the professional. Financial goals help the financial advisor understand where you want your life to take you in the future. Based on your financial goals, the financial advisor draws their entire strategy.

Goals can have a wide range. For instance, your goal could be retiring comfortably or saving for a child’s education. It could also be to save for a down payment for a house. Additionally, some of your goals could be relatively smaller, such as traveling or buying a car in the next year. Some goals can also be about not achieving but letting go, such as debt elimination. In such cases, the goal of debt elimination also extends to education on money matters and debt management. In general, goals can be categorized as short-, mid-, and long-term. Each of these requires a distinct approach as their timelines differ. Based on the timelines, the risk approach also differs. A financial advisor needs to consider these aspects to devise a suitable investment strategy for you.

When sharing your goals, it is important to be as straightforward and elaborate as possible. Share your goals, the desired timeline for each goal, and the urgency for achieving them. If you have multiple goals, you must share them all. You must also make sure to share goals, even if they seem personal. Sharing them can enable the financial advisor to understand your needs completely. This, in turn, can be helpful for your overall investment strategy. For instance, the financial advisor must know if you struggle with money management and are an impulsive shopper and your goal is to have better control over your money. With this information, they can understand your financial discipline and outlook towards money. This understanding can also help them suggest investments that come with a lock-in period to deter you from withdrawing your money too often. They may also suggest avoiding credit cards for easy access to funds. These measures can contribute to better control and resistance to spending money.

3. Any financial concerns and mistakes that you may have

Just like your goals, your financial concerns also shape your financial decisions. These concerns can trouble you, create fear, and influence you to take certain steps over others. The sooner your financial advisor knows about them, the better it is for you.

For instance, you may be concerned about tackling inflation. If your portfolio is not well-concentrated on inflation-beating instruments, your returns may struggle to counter inflation. Similarly, debt can be a significant concern for people, especially if you have multiple forms of debt that are hard to consolidate and repay. Some people carry financial trauma based on their past experiences. If you had a modest or deprived childhood, you may struggle with money management even if you have earned enough in your adulthood. In such cases, people still find it hard to spend or invest due to fear of loss. Instead, they prefer to save in the bank to protect their money, but this inhibits its growth and wealth creation. Conversely, if you had a privileged childhood, you may struggle with controlling your spending and saving money for the future instead of enjoying the present. Lack of financial education can also be a concern for many people. Not knowing where to invest or save or not understanding how different instruments work can create doubt and fear. Taxes can also be confusing.

People who do not understand these aspects are more likely to fear them or ignore them altogether. Both reactions can lead to financial issues in the long run. Sharing your concerns, no matter how big or small they may seem, can enable your financial advisor to understand your mindset and where you are coming from. It helps them recognize your triggers and worries. Based on this, they can adopt measures to educate you and ease your fears. Education plays a major role here and prepares you for the future while also alleviating your worries in the present. It also gives you a sense of comfort knowing your financial advisor understands your concerns and is working to address them.

Just as you have financial concerns, you may have also made mistakes in the past. This is crucial information that you should share with a financial advisor during an interview. For instance, taking on too much high-interest debt or neglecting to prioritize settling your student loan debt in the early years of your career are common errors. Failing to maximize your 401(k) contributions or paying attention to the investments within your 401(k) or IRA is another significant oversight. You may have even forgotten to rollover your old 401(k) to a new one when changing jobs. Similarly, lending money to friends or family without a legal document to prove it can be a costly mistake. Back taxes are also a concern for some. All of these mistakes can have an impact on your present and future financial security. Therefore, it is essential to share them with your financial advisor.

Your financial advisor can suggest suitable ways to correct these mistakes or, at the very least, educate you about them to prevent future occurrences. When sharing your mistakes, honesty and transparency are crucial. This is not a time to feel embarrassed but an opportunity to correct past errors. Being truthful is essential for your financial advisor to understand your situation fully. You must understand that financial advisors need such information to work in your best interests, even if it seems personal.

SPONSORED WISERADVISOR

4. Your risk appetite

The risk appetite refers to your willingness to invest in aggressive, high-risk investments. You can include more high-risk, high-reward investments in your portfolio if you have a high-risk appetite. Conversely, if you have a low-risk appetite, you may prefer to stick to relatively low-risk, low-reward investments. The former offers the potential for better growth, albeit with higher volatility, while the latter provides more stability but with lower returns. Your risk tolerance levels will help you decide the balance that suits you best and enable your financial advisor to select a suitable asset allocation for your investment portfolio.

Several factors can impact your risk appetite. Firstly, your age plays a significant role. Generally, younger individuals tend to have a higher risk appetite. The longer you can stay invested, the less impact market volatility has on your investments, as they have more time to ride out fluctuations. As you grow older, your risk appetite decreases since you have fewer years to recover from market downturns. If you are nearing retirement or have already retired, your capacity for risk will gradually diminish, and you will seek stability at this stage.

Income stability is another factor influencing risk appetite. Those with stable incomes and higher earnings may be more willing to invest larger portions of their money, as market fluctuations may not affect them as profoundly. Conversely, individuals with unstable incomes or lower earnings may be more inclined to protect their money from market volatility and may hesitate to invest more of it. Additionally, a person's general outlook also impacts their risk-taking ability. If you are naturally risk-averse, you may exhibit the same cautious approach with your investments. However, if you are confident and proactive, you may be more inclined to take risks with your investments as well.

5. Your existing assets and liabilities

Before hiring a financial advisor, you may have existing assets and liabilities. When meeting with a financial advisor for the first time, you can share these details with the professional by providing a comprehensive asset and liabilities list. Your assets may include retirement accounts, mutual funds, Exchange-Traded Funds (ETFs), real estate holdings, gold, collectibles, cash, stocks, bonds, and more. Meanwhile, your liabilities can encompass debts, expenses, insurance premiums, and other financial obligations.

Assets provide the financial advisor with valuable information about your current financial standing and how to leverage them to improve your financial position. For example, if you already have a traditional 401(k) account and are maximizing it, your financial advisor may recommend opening a Roth IRA to diversify your portfolio based on tax considerations. Similarly, your liabilities can help the financial advisor identify areas for improvement. For instance, if your monthly expenses exceed your savings goals, your financial advisor can focus on understanding the root causes and finding ways to rebalance in favor of savings.

A comprehensive list of your assets and liabilities enables the financial advisor to understand how to leverage one to improve the other. For instance, you may temporarily reduce investments to prioritize debt repayments, thereby enhancing your overall financial standing. High-interest debt can erode returns, making it prudent to concentrate on debt repayment temporarily rather than investing more of your money. Additionally, if you own a home, which is an asset, you may also have a liability in the form of a mortgage. A financial advisor can explore strategies to leverage one for the other, such as subletting a portion of the property to cover mortgage payments.

Ultimately, a financial advisor can make suitable recommendations based on your financial situation, considering your assets, liabilities, and financial goals.

6. Any pertinent information about your family and health

While it may initially seem unrelated to financial planning, sharing details about your family and health with a financial advisor is very important. Family dynamics and health status can significantly impact your financial well-being. 

If you have a large family and serve as the primary breadwinner, the responsibility to provide for them rests on your shoulders. Planning for children's higher education expenses or caring for a special needs child requires careful financial consideration. Moreover, if you have been married multiple times and have children from different marriages, you must account for the financial needs of all your children. Divorce or widowhood can also impact your finances, requiring your financial advisor's attention. For instance, divorce can lead to the separation of joint assets that can affect your individual financial standing. In such a case, a financial advisor can assist you with the division of your joint holdings. When sharing details of your family, you must also share any recent events, such as having a child, losing a loved one, family feuds with siblings, and other similar events, as these can lead to changes in your financial plan. For instance, if you are recently divorced, you may not have yet changed the beneficiary’s name from your ex-spouse on your retirement account. A financial advisor can help you spot this error if they know of your personal situation.

Your health status is equally important and can significantly affect your finances. Long-term illnesses often result in higher spending. If you have been diagnosed with a medical condition, it is essential for your financial advisor to be aware of it to plan your finances accordingly. Illnesses can also impair your ability to work and earn, which can be financially concerning. Therefore, it is crucial to share this information with your financial advisor. Your health status enables your financial advisor to devise a health plan tailored to your current and future expenses. This may involve considering insurance plans, Health Savings Accounts (HSAs), Medicare, and other options. You must also share mental health conditions with your financial advisor, if any. Anxiety, depression, obsessive-compulsive disorders (OCD), and others affect your relationship with money and how you react to situations. A person dealing with anxiety can find it hard to remain calm during periods of high market volatility. Likewise, a person dealing with depression may use money to elevate their mood, which can lead to more cash outflow, increased credit card usage, and a poor savings rate.

It is essential to share not only your own health status but also any concerns about the health of your loved ones. For instance, a spouse or child facing a critical or terminal illness can have a lasting impact on your finances. This information is instrumental in financial decision-making and lays the foundation for your financial plan.

7. Your estate plan, if one exits

Estate planning documents are a crucial part of the information you should share with a financial advisor during an interview. If you have already begun estate planning, it is essential to inform the financial advisor about your progress. This may include your will, trusts, power of attorney, health directives, and more.

Estate planning can be complex, involving numerous considerations to ensure the satisfaction of your loved ones and the proper handling of your assets. It is essential that all your assets are covered in your will, with consistent beneficiary names across all accounts and documents. Moreover, you must consider the impact of taxes on your estate and aim to minimize estate and inheritance taxes for your heirs. Health directives and power of attorneys are also crucial for end-of-life decisions, along with appointing an executor to carry out your wishes if you become incapacitated.

Financial advisors play a vital role in estate planning. They can assist you in creating a will, ensuring its accuracy and clarity while encompassing all your assets to avoid court-supervised probate. Probate can be both expensive and time-consuming for your family. Thus, you must make every effort to prevent it. Moreover, financial advisors can aid in establishing trusts to exert greater control over your assets. They can help distinguish between revocable and irrevocable trusts and tailor the terms to align with your best interests and those of your loved ones. Additionally, they can identify any gaps in your estate plan to ensure nothing is overlooked. Furthermore, they can recommend updates to your estate plan to adapt to changes in your personal and financial circumstances. Life events such as marriage, divorce, childbirth, loss of loved ones, and other significant occurrences may necessitate adjustments to your estate plan. Similarly, acquiring new assets requires modifications to incorporate them into your plan.

If you have not made an estate plan yet, it is important to inform your financial advisor. This disclosure allows them to recommend initiating estate planning as soon as possible. In this scenario, the financial advisor would need to begin from scratch. Based on the details of your personal, financial, and health status, they can assist you in drafting your will and implementing other estate planning measures like trusts.

Sharing your estate plans with the financial advisor can also help them better understand your personal situation. Details such as your potential inheritors, percentage share for each beneficiary, and trust terms allow them to analyze your family dynamics, which is crucial in devising your overall financial plan.

In Conclusion

In an ideal scenario, your financial advisor should know everything about you to ensure they grasp your personal, professional, and financial goals, along with your state of mind. These aspects are intertwined - your career dictates your income, your personal dynamics shape your spending and goals, and your state of mind influences your investment and savings patterns. The first meeting with a financial advisor sets the groundwork for the future, so sharing these details fosters transparency and enables the financial advisor to gain insight into your life. The more they know, the better they can understand your concerns and goals.

Use the free advisor match tool to get matched with 2 to 3 vetted financial advisors based on your needs. Simply answer a few questions and you will be matched to qualified advisors that meet your requirements. You are not obligated to hire any of the matched advisors but do connect and interview the financial advisors to evaluate the match.