My husband and I have been meeting with financial advisors, trying to find the right one for us. I already wrote a blog about how to prepare with a meeting with a financial advisor. Here are some questions you should ask once you’re in that meeting.
1. Are you a fiduciary?
A fiduciary is legally required to give you the best investment advice for you, meaning they can not suggest products that benefit them but not you. Your advisor should be a fiduciary.
2. What is your personal investment philosophy?
A good financial advisor will be able to tailor their approach to your philosophy and risk tolerance level. That said, it’s important to feel a connection with your advisor and it’s easier to do that if you share the same ideas. For example, we need one who believes in buying physical real estate.
3. Do you think I’ll receive any social security?
This topic could be part of the general philosophy question. I happen to believe social security will exist at some age and at some level. One advisor we spoke with doesn’t believe we can plan for it at all.
4. How will you know what the right investments are for me?
The advisor will need to know what your lifestyle and retirement goals are to create the right approach. They’re also going to need to understand your risk tolerance. If your portfolio dropped and you lost tens of thousands of dollars on paper in a day, how would you feel? Would it make you sick or would you know time is on your side and your portfolio will bounce back?
5. How do you feel about leverage?
Leverage can be a powerful tool for generating wealth. If you are not comfortable with borrowing money to make more money, you may not want to work with an advisor who is a huge believer in leverage. This goes back to the risk tolerance.
6. Do you have any certifications?
Most people recommend using a financial advisor who is either a Certified Financial Planner (CFP) designation and the Chartered Financial Analyst (CFA). I might be inclined to work with someone who didn’t have either of these depending on their education and level of experience.
7. What’s your education background?
It would be ideal if they had a business degree, like finance or economics. If not, you run the risk of dealing with a salesperson more than an educated professional. Again, I could see around this one if our philosophies matched and they had a lot of experience working with people with similar goals to mine.
8. How long have you been a financial advisor?
We were all young and starting out once, so it might be tempting to let experience slide. For me, this is an important one though. I need to know someone has years of experience so they’re not using me as a guinea pig.
9. What kind of clients do you usually work with?
My husband and I ascribe generally to the Financial Independence, Retire Early (FIRE) movement, meaning we want to retire earlier than most. We also believe in a buy and hold real estate portfolio. I want to know I’m working with an advisor who has worked with others like us.
10. Why are you a financial advisor?
You might catch them off guard with this one. I want to know my advisor is passionate about money, finance, and helping people.
11. Do you specialize in anything?
If the advisor is a specialist on leverage, insurance, etc., I want to know. If I need insurance and I’m speaking with an insurance specialist, great. If I don’t need insurance, there’s no need for me to be pitched about insurance.
12. How do you get paid?
Most advisors get paid a percentage of your assets under their management. The ones I’ve spoken to get 1.35%-1.75% per year, and they take their payments every quarter. Some get paid hourly. If you feel the advisor will add more value to your portfolio than their percentage fee, that structure might work well for you. If you don’t believe that’s the case, go with an hourly advisor.
13. Since you won’t be managing 100% of my assets, how will you take those not under management into consideration?
Some of your assets will not be managed by the advisor. In our case, this includes our duplex and our 401(k)’s. The advisor should show interest in those other assets to ensure they aren’t duplicating investments.
14. How often will we meet? How will we communicate?
Once you invest with a financial advisor, they’ll usually want to meet somewhat regularly. This could be once per quarter or once per year. They should also plan to call you when urgent changes need to be made. It would be a red flag if you invested with them and then didn’t hear much from them afterwards.
15. Do you know how to effectively reduce my tax burden?
Taxes are complicated and not planning properly in regard to taxes can lead to expensive mistakes. It’s especially important when you’re getting closer to retirement age to seek tax advice.
16. How will you evaluate my portfolio, so you know when to make changes?
You’re paying an advisor to actively manage your assets; therefore, you need to know what they’re actually going to do with them, and what criteria they’ll use to measure success. And if they deem parts of the portfolio are not successful, what will they do?
17. Has a client ever stopped working with you? Why?
Meeting with a financial advisor is kind of like a job interview, so why not ask this job-interview-like question? How the advisor answers this will tell you how much self-awareness they have and will let you know whether you’d be likely to stop working with them once you started too.
Good luck in the meeting! Email us and let us know if this helped at firstname.lastname@example.org. We’d like to hear if you have additional suggestions for questions to ask, too.