Top 10 Questions to Ask Your Financial Advisor
When households interview for a financial advisor or a financial planner, one of the first things they ask is, “What is your rate of return?” Unfortunately, no advisor can answer that directly because every client is unique, making the conversation unproductive. Instead, ask the following questions to evaluate a potential or existing financial advisor. These questions will help you determine who you work with and whether they fit your financial needs.
1. Will you act as a fiduciary when making recommendations and decisions on my behalf?
Ask if the financial advisor or financial planner acts in a fiduciary capacity or by a suitability standard. An advisor who meets the suitability standard will give advice based on a client’s age, risk tolerance, and financial goals. A fiduciary, however, will always act in their client's best interest.
2. How frequently do you meet with your clients throughout the year?
Determine whether they meet with clients once or twice a year, quarterly, or as needed, depending on your requirements. Ask how they communicate: video, email, phone, or in person. Most financial advisors should meet with clients at least annually.
3. What services do you and your team offer besides investment management? Do you collaborate with other professionals?
Ask if the advisor offers services like retirement planning, cash flow analysis, or tax reduction planning.
If you have or plan to set up an estate plan, find out if the advisor can assist with distribution strategies or if they collaborate with tax and estate professionals to create a tailored plan.
4. How are you paid? Is your fee or commission transparent?
Understand how the advisor gets paid.
Some work on commission, meaning they make recommendations but may not act in a fiduciary capacity. Others operate under the fiduciary standard and charge a fee billed monthly or quarterly, often as a percentage of assets under management (AUM). Some advisors charge an hourly rate or retainer fee for advice.
Ensure their fee structure is clear.
5. What is your educational approach for clients?
Your advisor may offer continually updated resources, client seminars, or ongoing education to help you better understand your financial plan. Ask them to explain what sets them and their firm apart and how they provide exceptional service compared to competitors.
6. Who is your average client?
Find out if they specialize in clients similar to you. For example, they might focus on high-net-worth strategies for clients close to retirement or those in a younger demographic just beginning to save for the future. Ensure their expertise aligns with your needs.
7. What custodian do you use to hold my accounts?
Confirm they use a reputable third-party custodian to hold assets, report on them, and place trades. Avoid advisors who ask for direct payments or suggest holding your money themselves—these are most likely red flags.
8. What are your qualifications?
Ask about their educational background and certifications, such as Certified Financial Planner™ (CFP®), Chartered Financial Consultant (ChFC®), or Chartered Financial Analyst (CFA®).
Verify their licenses. Series 6 is a basic license for packaged securities, while Series 7 is more in-depth. Series 65 and 66 are crucial for investment advisor representatives, which require fiduciary responsibility.
9. Do you have a minimum asset base or account size?
Find out if they have minimum asset requirements to avoid mismatches. Advisors with such limits may not be able to accommodate all potential clients.
10. Do you currently have any disclosures for misconduct?
If they have disclosures, ask for an explanation and the outcome. This doesn’t always mean misconduct occurred, but transparency is crucial.
Have questions on how to evaluate your financial advisor?
If your financial advisor cannot answer the questions above, chances are they aren’t a good fit, and you may need to move on. At Chatterton & Associates, we are a team of Investment Advisor Representatives who practice fiduciary standards to act in your best interest. If you need help with retirement, tax, or estate planning, please contact us today.
