We get it. Asking for help — especially with your money — is a big step. That’s why we’re here to help you start your search for a trusted financial professional with a concise list of questions to ask a financial advisor.
You can use these questions to start better conversations with any advisor you meet and even use them to inspire your own. Because finding your ideal advisor match is about more than available investments and projected investment returns. It’s about finding the person who gives you peace of mind about reaching your goals, no matter the market conditions.
Here’s a surprising fact: Many states don’t have licensing requirements for financial advisors. That dismays us as much as it likely does you. That’s why it’s important to get the low-down on a prospective advisor’s training, certifications and licenses that make them qualified to manage your money.
Your advisor might hold one of many different advanced financial advisor certifications, including the popular Certified Financial Planner (CFP) designation. Advisors with CFP after their name have undergone a rigorous process that includes experience, education and exams. While it shouldn’t be a mark against an advisor if they don’t hold this certification, those three letters could offer you greater confidence in their qualifications.
If a prospective advisor also places trades on your behalf, they may also have a Series 7 license issued by the Financial Industry Regulatory Authority (FINRA).
You might think an advisor must always act in your best interests, but that’s not always true. The only financial advisors who must always put your needs ahead of their own are those who act with fiduciary duty.
Fiduciary financial advisors are required by law to put your interests ahead of their own. Advisors not bound to the fiduciary rule often abide by the suitability rule. Advisors bound by suitability standards only have to make recommendations suitable for your investor profile.
For example, say your portfolio needs a mutual fund for large-cap stock exposure. A fiduciary advisor must offer you the best possible fund (including costs, performance and returns). In contrast, an advisor following suitability standards may offer you a large-cap mutual fund that pays them the highest commission. Advisors bound by suitability may also have conflicts of interest since they could be motivated to make recommendations that generate higher fees.
The word “disclosure” sounds ominous. In the financial world, a disclosure is a legal or regulatory action filed against a firm or financial professional. Asking advisors about their disclosures is a key question you don’t want to skip.
Here’s the good news: Advisors must make disclosure information public and update it annually. As a result, you can easily find information on any firm or individual advisor through the SEC’s Investment Adviser Public Disclosure website. There, you can find a firm or advisor’s latest Form ADV (a required annual filing) and any disclosures in the past 10 years. We even have a helpful guide to navigating a Form ADV, including how to find disclosure information.
There’s nothing that kicks you in the gut quite like sticker shock, so how your advisor gets paid should never be a surprise. However, there’s no one way that financial advisors are compensated. That’s why questions about fee structures are so important.
Our recent research shows that the most popular way advisors charge is a percentage of assets under management (AUM). For example, if your advisor manages a $10,000 portfolio for you and they charge a 1% AUM fee, you’d pay $100 per year.
Advisors can also be fee-only or fee-based. A fee-only advisor only earns money from the fees you pay. A fee-based advisor earns money from the fees you pay in addition to fees from outside sources.
For example, a fee-only advisor wouldn’t earn commissions when buying and selling securities for you. On the other hand, a fee-based advisor may earn your AUM fee plus commissions when placing trades. In addition, both types of advisors may charge flat fees or hourly fees for services like financial planning.
When meeting with a prospective advisor, ask about fees beyond AUM and any investment management and services they provide. Some of these fees could include mutual fund and ETF management fees (expense ratios), brokerage fees, custodian fees or additional fees like ACAT fees and wire transfer fees. Any advisor worth their salt can walk you through additional fees you might pay should you work together.
It’s also important to note that these additional fees aren’t paid to your advisor. Instead, you’ll pay them directly to the brokerage or fund.
Just like physicians, financial advisors can have specialties. So at your first meeting, don’t be shy about asking for an advisor’s practice areas.
For instance, if you’re looking for an advisor to help with your retirement planning needs, you deserve an advisor who makes this planning their bread and butter. Also, if you’re affluent and need family office and legacy planning services, your advisor should be well-versed in those capabilities.
And remember: Any advisor can say they do something, but they might not do it well. When in doubt, ask the investor for references from clients using the services you seek. If an advisor can’t or won’t provide references, it’s likely best to keep looking.
Depending on the services an advisor offers, you might be able to get a pretty good feel for their ideal client. This is another area where a firm’s Form ADV can come in handy. In that form, firms must share how many high net worth and non-high net worth clients are in their practice. Numbers skewing in either direction or an even split can tell you a lot about an advisor’s preferred client profile.
To find an advisor’s client profile in the Form ADV, navigate to “Item 5: Information About Your Advisory Business.” Then, view the data in the Clients section.
If you’re going to pay for an advisor to help you navigate your most pressing financial decisions, you want them to be available. Therefore, establishing clear lines of communication from the get-go is a must.
When you meet with a potential advisor, ask them how they prefer to communicate first. You’ll likely hear options that include phone and email. Advisors may prefer not to text, as texts aren’t secure. You can also ask whether the advisor prefers in-person meetings or offers virtual check-ins via videoconferencing.
And while texting might be off the table, you should have multiple ways to reach your advisor and be comfortable with the available options.
Investment strategies are one of the most important differentiators between financial advisors. You deserve an advisor who can clearly communicate their approach to investing your money. After all, it’s your money.
Advisors will vary in how they approach things like portfolio construction, preferred investment types and general approach to client holdings (short-term trading versus long-term investing). Of course, your advisor’s approach will change depending on your goals. For example, they’ll likely have a much different approach to your retirement savings if you’re 30 years away from retirement instead of getting ready to retire in the next two years.
Hiring an advisor is one thing. Tracking your investment goals is another. Therefore, it’s important that your advisor can clearly state how they’ll measure your success.
Some advisors might measure your portfolio’s returns against a major stock index like the S&P 500. The better advisors will use your financial goals and performance benchmarks to measure if you’re on track or falling behind.
For example, if you’re saving for retirement but didn’t make the maximum contribution to your Roth IRA for the year, you might not be on pace to achieve your savings goals. In that case, your portfolio might have performed well against the S&P 500. However, to truly be successful, you’ll need to increase your monthly IRA contributions in the coming year.
Life’s full of interesting situations that can affect your finances. Your ideal financial advisor should be able to share how they assess your life and investments and make changes to keep your goals on track.
For example, your advisor might offer quarterly, semi-annual or annual portfolio reviews. In addition, they might perform quarterly portfolio rebalancing to keep your asset allocation in line with your investor profile. And when life demands more of your money (you start a family or must care for an aging parent), your advisor should be able to update your finances on the fly and adjust your plan so that you can meet your goals today and in the future.
These 11 questions to ask a financial advisor are just the beginning of what we hope will be a long and rewarding relationship with the financial partner you deserve. If you’re ready to dive deeper in your financial advisor search, we have two next steps you can take: