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16 Important Questions You Should Be Asking Your Financial Advisor

To get the most value from your financial advisor, you must ask the right questions.

Pose strategic questions to prospective advisors and you can quickly weed out the pros who don’t fit your needs. During financial and retirement planning sessions, you can lean on pointed queries to reveal assumptions that should be refined. And in your annual reviews, targeted questions can uncover what’s really working in your financial plan.

Here are 16 key questions to ask a financial advisor — in the first interview, during retirement planning sessions, and in your year-end financial reviews.

Your First Financial Advisor Interview

1. How Will Our Advisor-Client Relationship Work?

Your goal here is to understand how often you’ll talk with your advisor in person, online, or over the phone. There are two points to verify in this conversation: how much time your advisor needs from you and how much time you need from your advisor.

Your advisor will ask you to carve out time for planning discussions and financial decision-making. If you can’t fit those conversations into your schedule, your financial momentum will suffer.

On the other hand, you may need more contact with your advisor than the average client. Say you tend to panic when the stock market dips. In that case, you’d probably benefit from a reassuring phone call now and then. The right financial advisor for you must be open to those unscheduled conversations.

2. How Do You Get Paid?

Advisors earn through stated fees, commissions, or both. You pay the stated fees and other partners pay commissions.

Commissions are an important topic of discussion because they create conflicts of interest. Your advisor should be recommending financial products that benefit you, regardless of the commission opportunity. But unethical advisors may put themselves first by pushing products primarily to pad their own income.

If an advisor earns commissions, ask how he or she handles conflicts of interest. Generally, you want an advisor who’s transparent about these conflicts.

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3. Are You a Fiduciary?

There are two standards of conduct that help financial advisors and their clients manage conflicts of interest: fiduciary duty and best interest.

Fiduciary advisors put their clients’ needs above their own. In practice, fiduciaries avoid conflicts of interest, usually by not selling commission-based products. They are ethically bound to make recommendations that best match the client’s financial situation and goals — even if that results in lower income for the advisor.

The SEC’s best-interest standard is slightly more lenient than the fiduciary standard. Under the best-interest protocol, your advisor should only propose financial products that are the most appropriate options. Conflicts of interest are allowed, but the advisor must disclose them. In practice, that means the advisor should tell you about any commissions associated with his or her recommendations.

Consider it a red flag if an advisor doesn’t adhere to the fiduciary or best-interest standard.

4. What Licenses and Certifications Do You Have?

Personal financial advisors can have a range of licenses and certifications. Those credentials tell you what type of education and training the advisor has. Credentials also help you with background checks; you can contact the credentialing organization to verify the advisor is still certified.

For a detailed review of advisor licenses and certifications, see What Can A Financial Advisor Do For Me?

5. What is Your Investment Philosophy?

Investment strategies can vary widely, but most fall into one of two camps: buy-and-hold or market timing.

Buy-and-hold investors choose stocks, mutual funds, and other assets that have long-term potential. These investors keep a relatively stable portfolio and generate gains through long-term appreciation.

Market timers are on the hunt for short-term gains. They buy stocks and other assets that are poised to grow quickly. If the expected gains are realized, they’ll often sell those positions to lock in the profits. As you might guess, market timers trade often and their success hinges heavily on executing transactions at the right moment.

Buy-and-hold strategies are generally lower risk (but less exciting) than market timing strategies. If you are risk-adverse, you’ll mesh better with an advisor who takes the long-term approach. By comparison, market timing strategies create more volatility.

6. How Do You Decide on Asset Allocation?

Asset allocation is the composition of your portfolio across different asset types, like stocks, bonds, real estate, gold, and cash. Using this composition to tailor portfolio risk is an important concept in investment management.

Find out how your advisor customizes your asset allocation to suit your situation. The usual factors here are your age and your risk tolerance. If you are younger and open to carrying some risk, for example, a more aggressive allocation favoring stocks is appropriate. Older and more conservative investors generally prefer a heavier bond allocation for greater stability.

7. Will I Work with Anyone Else on Your Team?

You should know the names of assistants and other team members who may contact you and under what circumstances. If there’s someone else who will field technical and financial questions, verify that you’re comfortable having those conversations with that person.

8. Do You Specialize in Certain Types of Clients?

You don’t want to be an outlier in your advisor’s practice. You’ll get better advice by being the type of client your advisor wants.

This question should lead into your net worth, your risk tolerance, and your overall financial goals. Be prepared to discuss those topics, so you and the advisor together can decide if you’ll make a good team.

9. What Will My Total Costs Be?

Fees chip away at your net worth over time. You can’t avoid them entirely, but you should do your best to manage them.

Make sure you know all the charges coming your way. Ask your advisor to talk you through the fee structure, including management fees, trading fees, account fees, and administrative fees.

10. How Will Your Investing Strategy Affect My Tax Bill?

If your advisor is managing your money in a taxable account, you’ll pay taxes annually on realized gains, dividends, and interest. Your earnings will cover those taxes — but pulling money from your investment account reduces your future wealth potential.

Most advisors will be mindful of this. Make sure yours is. Ideally, the advisor follows a tax-efficient investing strategy and estimates tax implications prior to making recommendations.

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Questions to Ask Your Advisor About Retirement

Retirement planning can be incredibly complex. If you’ve engaged an advisor to help you in this area, use the questions below to test the advisor’s assumptions and plans.

11. When Can I Retire?

To estimate when you can retire, your advisor must project the growth of your savings, estimate the income you’ll need in retirement, and assume an annual withdrawal rate to support that income. Dive into those assumptions and make sure you agree with them.

12. What Will My Income Be in Retirement?

You may have a specific vision for your retirement. You’ll want to verify that your vision aligns with your advisor’s projections. It’s a problem if you plan on traveling the world as a retiree, but your advisor budgets lean living expenses.

If necessary, ask your advisor to rework your plan with different income assumptions — so you can see how that affects your retirement schedule and the longevity of your savings.

13. How Do I Plan for Taxes in Retirement?

Distributions from traditional IRAs and 401(k)s are taxable. Up to 85% of your Social Security income can also be taxable. If you don’t budget for those expenses, your savings won’t last as long as you’d like.

Your advisor should proactively recommend strategies for managing income taxes in retirement. These strategies may include Roth retirement contributions, Roth conversions, or Qualified Longevity Annuity Contracts.

Questions to Ask Your Advisor During the Annual Review

Once you choose an advisor, you will meet annually to assess the progress towards your financial goals. The advisor often leads this conversation, but you should assert your own agenda, too. Use the following questions to deepen your understanding of your advisor’s year-end analysis.

14. How Has My Net Worth Changed? What Drove the Change?

Your advisor should expect this line of questioning and be prepared to answer it in detail.

Ask your advisor to talk through your net worth change in line-item detail. You’ll want to know which assets appreciated during the year and which assets lost value.

Look for opportunities to probe for more information, too. If a particular asset type lost value during the year, for example, find out why. If you still own that asset, ask about its role in your plan going forward.

15. How Are My Investments Performing Relative to the Market?

Market performance adds context to your net worth change. If the stock market dropped 30% in the past 12 months, your net worth is also probably down. By the same token, if the market’s been strong, you should see gains in your own account.

The investing strategy will dictate how much difference you’ll see between market performance and your account performance. An aggressive strategy can outperform the market when stock prices are rising, but under-perform when stock prices are falling. A conservative strategy often does the opposite — under-performing in strong markets and showing lower losses in down markets.

Significant deviations between your results and market activity would be a cause for concern, however. If you lost 20% in the past year while the market grew 10%, your advisor has some explaining to do.

16. How Much Progress Have I Made on my Financial Priorities?

Ask your advisor to measure and evaluate the progress you’ve made towards your financial priorities. Are you on track? If not, why? Are there changes you can make to expedite results?

Use this conversation to reevaluate your financial priorities. Make sure they’re realistic within your timeline. If they’re not, lean on your advisor to recommend a course-correction.

Check Assumptions and Keep the Dialogue Flowing

In your first interview with an advisor, you’ll check your own assumptions about the advisor relationship, the costs, the planning process, and the investment strategy.

In later meetings, check the advisor’s assumptions — they’re baked into your personalized financial plans and they influence your results. Refining the accuracy of those assumptions helps you build wealth momentum and reach your financial goals faster.

No matter what, keep the dialogue with your advisor open. Circumstances change and financial plans must evolve. Although the journey to financial independence rarely follows a straight line, an inquisitive mindset can keep you moving in the right direction.

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