The Need For Honest Conversations With Your Financial Advisor

Your financial advisor is the custodian of your money. They help you frame effective money management strategies, enabling you to achieve your objectives. As per Vanguard, one of the world’s largest investment companies, there is a quantifiable increase in investment return from working with a professional financial advisor. A separate study by Russell Investments specified that a good financial advisor could potentially increase investor returns by 3.75%.

Hence, you must analyze all parameters and choose a professional that appropriately matches your needs. Once you have found an advisor that can help you manage your money and achieve your financial goals, you need to take the right steps to ensure you make the most of your association. To make sure your relationship with your financial advisor is fruitful, you must be open and honest with the professional regarding all your financial matters. Nearly all aspects of your life, including your marital status, kids, salary, retirement savings, tax charges, etc., can impact your financial decisions. So, it can help you to be open about these things with your financial advisor.

Only when your advisor understands your financial position, preferences and goals clearly, can they take appropriate measures to help you. You should discuss your current financial standing with the advisor as well as share your risk tolerance, goals and values, past experiences with money, financial mistakes, big and small financial decisions, and much more. Keep in mind that transparency and honesty are two pillars of a successful relationship with your financial advisor.

Here are some things you should honestly discuss with your financial advisor:

• Discuss your financial goals and values to determine your objectives and long-term vision:

Your financial goals are deeper than just making more money, planning for retirement, or buying a house of your dreams. Real goals are focused on the future and are defined by solid reasons. You have to be true to yourself and your financial advisor about different aspects, like:

• What and who is the most important to you?
• What do you wish to do for your entire life?
• What are your monetary worries?
• What kind of future do you envision for your children?
• How do you want to spend your retirement?
• What kind of security do you want for your children?



Your financial advisor should also understand your monetary values and your relationship with money to better comprehend your financial objectives and vision for the long-term. In addition to this, your financial advisor might benefit from knowing your background. For example, if you experienced a big loss in real-estate-related assets, you might be apprehensive to invest in real estate again. But, unless you discuss this with your financial advisor, they might be in favor of making real-estate-related investments, which would typically go against your values. Moreover, your advisor should also know how you measure or define success. For example, if your goal is retirement planning, then would you measure the work of your financial advisor by assessing if you have achieved your retirement savings benchmark, or would you also analyze factors like long term care planning, estate planning, etc. It is advisable to share your holistic vision of success with the professional if you wish your advisor to meet or exceed your expectations.

• Understand your risk tolerance to decide the asset selection in your portfolio:

As a guardian of your money and investment matters, your financial advisor should know your risk preferences. Your risk appetite will fundamentally govern your asset selection in the portfolio, which, in turn, influences your returns and long-term financial goals. For this purpose, you must understand your risk level and ability to psychologically endure the idea of losing money on an investment. Your risk tolerance can change throughout your life and it will help your financial advisor determine the type of investments to make. For instance, if you are young, you ideally have a high-risk tolerance. In such cases, your financial advisor will structure your portfolio such that it includes more equities and fewer bonds or other secure assets. By including more stocks, the advisor is aiming to garner higher returns while bearing a significant level of risk. Alternatively, if you are near your retirement age, your advisor will likely include more bonds in your portfolio than equities. This is because when you are close to retirement, the primary objective is capital preservation and securing returns, rather than opting for risky investments or high returns. That said, your financial advisor can align your portfolio as per your life stage and risk appetite only when you share your personal preferences with them. If you are honest about the returns you expect and the risk you are ready to bear, along with your investment time horizon, and more, your financial advisor would be in a better position to help you.

• Disclose monetary facts to construct a financial plan in line with your vision:

  To enable your financial advisor to prepare a holistic financial plan, you must be clear about your monetary situation and facts. Have an honest conversation with the professional about your annual spending, primary financial concerns, income and expense flows, personal vision of wealth, income and capital growth requirements, etc. Details about your annual spending will help the financial advisor determine how long you have to work and how much you need to save. It further dictates your investment strategy and asset choices. Besides, by helping the professional understand your income and expense flow, you are supporting them to better align with your retirement vision. You could have additional income options for retirement, such as rental property, freelance work, consulting, etc., to supplement your lifestyle. Knowing your income and expense flows will help the advisor properly construct your financial retirement strategy. That said, your financial advisor is a steward of your wealth. Hence, they should provide services beyond your investment management. Ideally, these professionals should be trusted resources and a confidant for all wealth-related matters in your life. To get the most of your professional relationship with the financial advisor, you can tell them about your aspirations, your vision of personal wealth, your spending habits and lifestyle, and other related aspects.

• Discuss your past financial mistakes to make sure the same mistakes are not repeated:

  The better your advisor knows you, the better prepared they can be to assist you. So, it is advisable to share even the minute details with the professional, including the mistakes that you are not so proud of. For example, if your negligence caused you to pay a hefty tax duty in the past, you should fully discuss the incident with your financial advisor. Moreover, inform your advisor about other past financial mistakes, like if you chose the wrong retirement account, a time when you could not meet your savings target, or had accumulated a lot of credit card debt. Ideally, your advisor will listen to your past experiences, understand what went wrong, and ensure the same mistakes do not happen in the future. The objective of this activity is to let the professional learn from your past mistakes, set realistic expectations going forward, and plan for the best outcomes possible. Further, be open to having detailed conversations with your advisor regarding all your financial decisions – big or small. This could include small issues, like

• Should you buy or lease a car?
• Should you loan money to your child?
• How should you plan for retirement?
• How to get insurance if you have Alzheimer’s?



The motto is to create a relationship with the advisor where you can trust and share almost anything with them. In some cases, even oversharing can work to your advantage.

• Review the fee-model adopted by your advisor for their services:

  All financial advisors use a particular fee-model to charge for their services. The way they charge their fees can have a huge impact on their service quality and your budget. Therefore, it is wise to always be upfront and have an honest conversation with your financial advisor about their fee-model. Ideally, there are two ways in which financial advisors charge their clients.

  Fee-only advisors:

  They charge a flat fee, an hourly charge, or a per-project basis fee. There is no other compensation they get except for the defined fee mode. Moreover, these advisors do not earn a commission on any financial products and services they sell. In such models, the main advantage is that there is uniformity in their fees irrespective of the size of your assets. However, some of the fee-only advisors charge you in terms of a percentage of the assets they manage on your behalf. This fee is usually between 1% and 2% of the AUM (Assets under Management).

  Fee-based advisors:

  The second fee-model that advisors use is fee-based. In this type of fee structure, the advisors do not charge you for the services they provide because they earn their remuneration through a commission on investments you make through them. In some cases, professionals might levy a specific fee, which is over and above their commission.

  In all, it is important to understand the fee-model adopted by your advisor and what they include in the fee. If you do not agree with the fee-model, you should have a face-to-face conversation with your advisor regarding the same.

• Fiduciary standard will ensure that your advisor acts in your best interest at all times:

Another important aspect you should understand when engaging with a financial advisor is if they are a fiduciary. Fiduciary advisors are governed by a defined ethical code of conduct. The advisors lawfully pledge to act in your best interest at all times. Hence, you can be assured that a fiduciary will offer you the best advice and not a biased opinion. Moreover, with a fiduciary, you get peace of mind that your hard-earned money is in the right hands. Further, as a fiduciary, your financial advisor will work effectively to disclose, reduce, and eliminate any disputes to ensure transparency. So, you must ask your financial advisor if they follow the fiduciary standard. Shying away or delaying these conversations could result in probable disputes, monetary losses, and more.

• Disclose your financial documents to help create a diversified financial plan:

When you start working with a financial advisor, you will have to provide them with the necessary information and documents they need. Your advisor can ask for your account statements, tax returns, income receipts, debt certificates, and more. The list can be broader than you anticipate. You might even need to disclose your insurance details or retirement account nominees to get the best possible guidance from your advisor. The professional can provide the best results when you are willing to share all the relevant information. This might even include details of accounts that are not under the scope of your financial advisor. A comprehensive vision helps the advisor create a properly diversified and strong plan.

• Share your financial dreams and recent life changes to help determine what you wish to accomplish:

If you want your financial advisor to sync with you, it is beneficial if they understand where you realistically want to be and where you ultimately dream of being. When your advisor aligns with your financial dreams, the chances of getting there are higher. So, do not hold back or hesitate and share all your financial dreams. Moreover, apprise your advisor of the slightest change in any of the monetary factors in your life. For instance, let your advisor know of events, like changes in your budget, nominee names, marital status, designation and salary, etc. Further, it is advisable to inform your financial advisor about your current and expected future lifestyle. Let them understand what your life looks like or what will be your retirement lifestyle many years from now. Knowing your retirement lifestyle expectations lets your advisor precisely determine what you wish to accomplish and in which areas you would be willing to adjust.

To sum it up

When you open up with your financial advisor completely, you are allowing them to improve your financial situation. You might find physical, one-to-one conversations a bit unnerving. However, having an honest dialog with your financial advisor can be a great way to make sure that you stick to your plan and achieve your goals in the stipulated time. It is critically important that your professional financial advisor obtains a full and complete picture of your expectations, visions and goals, commitments, past mistakes, current risk tolerance, etc. Remember that by providing comprehensive financial information, you are establishing strong foundations of a long-term and fruitful association with your financial advisor.

William is currently a member of the Paladin Registry Publishing Team. He comes from a diverse background of financial services and consumer relations Industry. William holds a Bachelor’s of Arts in Economics that he received from Allegheny College, with specialized coursework in finance and marketing. He has also earned state licensing for fixed annuities and life insurance, and has worked with advisors in the past on mutual fund and variable annuity marketing.