• Home
  • Questions to Ask a Financial Advisor Before You Invest

Questions to Ask a Financial Advisor Before You Invest

Jonathan Swanburg
By: Jonathan Swanburg
Share This Post

Hiring a financial advisor can be one of the most important financial decisions an investor ever makes.  The right advisor can help set goals, improve investment returns, create tax efficiencies and foster a strong sense of confidence when it comes to retirement and legacy planning.  But “financial advisor” is a generic term and not all people describing themselves as “financial advisors” offer the same set of services.

Before going out and hiring someone to help manage your money, here are some questions you should ask to make sure his or her services are aligned with your goals:      

What Do You Do?

As I mentioned above, there is no shortage of people offering financial advice.  Investment brokers, insurance agents, registered investment advisors, financial planners, financial coaches, and tax preparers are all often held out as financial advisors.  But these job titles all describe very different things.  The investment broker sells securities, the insurance agent sells annuities and life insurance, the registered investment advisor sells investment advice, the financial planner creates financial plans, the financial coach helps clients become better with money, and a tax preparer does taxes.  Many advisors have multiple licenses and offer a service that falls into multiple categories so it is not a dumb to ask the question, “What is it that you actually do?”

Do You Work for Commissions or Fees?

When a financial advisor makes a recommendation, it is important to know her compensation incentives. For example, when the advisor recommends an insurance or investment product, is she working for a commission?  If so, does she have a reason to recommend one product over another? 

If the advisor doesn’t get paid on commission, she probably charges a fee.  If charging a fee, is the fee flat for all clients (i.e. $5,000 for a financial plan), or is the fee based on a percentage of assets under management?

Advisor compensation structures are far from uniform and can vary dramatically from one firm to the next.  While some firms are fee-only, or commission-only, many rely on a structure that allows them to charge a fee for some services and a commission for others.        

Ultimately, one compensation method is not universally better for clients than the other.  However, understanding the advisor’s compensation should be an important part of the conversation.   

Who Will I Talk to About My Accounts?

You may meet an advisor that seems like the perfect fit.  She is smart, experienced, comes highly recommended, and works with clients that are in your exact situation.  You are excited, you sign up, and a few weeks later you call to get a status update on the accounts.  At that point, an assistant gets on the line and offers to walk you through the details. 

Depending on how the advisory firm is structured, you may never talk to the original advisor ever again. 

For some people this doesn’t matter.  They like the idea of being clients of the firm supported by a large team and institution.  Other people want to build long-term relationships with a dedicated advisor.  Whatever the preference, meeting the entire team and discussing in advance how calls and account reviews will be handled will be an important component of setting expectations.            

How Often Will We Meet?

Goal setting and habit forming requires consistency and when it comes to financial objectives, reviewing accounts with a financial advisor can be an important part of staying on track.  Some advisors will meet with clients once per year, while others meet quarterly.  Some advisors recommend clients call whenever they need help, others make the sale and never talk to the client again.

Whatever the case may be, it is important to find an advisor that is going to meet your expectations.  If you are the kind of person that wants frequent contact or reviews, make sure to ask the advisor whether that is something he accommodates.            

How Do You Typically Meet with Clients?

Hiring a financial advisor is a great step towards accomplishing financial goals but to be successful, it is critically important for you to learn about your accounts, understand the broad financial plan and monitor your progress.  However, there are only so many hours in the day and between work obligations and family events, it can often be difficult to find time to meet with your advisor. 

Keep that in mind when you interview advisors.  Does the advisor meet with clients by phone or video chat?  Does he have client meetings in his office?  Does the advisor meet at the client’s home or place of work?  There is no one right or best solution but finding the advisor that can accommodate your schedule will be an important part of keeping you on track over the long run.

What Is the Investment Strategy?

There are a huge number of different vehicles for investing money.  Mutual funds, exchange traded funds, unit investment trusts, separately managed accounts, stocks, bonds, options, futures, and variable annuities just to name a few.  Some advisors pick their own investments while others use models or third party managers.  Some advisors believe in passive strategies while others rely on more active management. 

The pros and cons of the investment types and styles are beyond the scope of this post but ask an advisor about her strategy.  She should be able to easily articulate the rationale and keep things simple.  If the story sounds too complicated or too good to be true, it is a good idea to be skeptical. 

Ultimately, great financial advisors don’t mind your questions.  Do your research, conduct interviews, and find the person and company best suited to your goals.