What Questions Should You Ask Your Financial Advisor?

Financial Advisor Questions You’ve made the decision to hire an independent financial advisor to manage your money and personal investments. This advisor’s responsibility is to develop a plan – essentially, a strategy. Choosing the right financial advisor is one of the most important financial decisions you will make, so you don’t want to take it lightly. Not all financial advisors are the same. The financial advisor you select will influence your investment decisions and the quality of those decisions will impact your long-term financial security, especially in your retirement years.

So before you decide to go with the first advisor you talk to, it’s important that you meet and interview a number of candidates carefully. The best way to find a financial planner is to ask people you know and trust for recommendations. Then, do your own due diligence by looking them up online. Be sure to check professional websites such as LinkedIn and their own website, or their firm’s website.

Be prepared to meet with each candidate in person. At your initial meeting you should expect the advisor to ask both exploratory and direct questions about your life, personal finances and future financial goals.  Be open to the questions and answer them as honestly as you can. It’s also important that you ask your own questions to find out what this person really does and how he or she can help you. Your questions should include who is actually managing your investments – most FAs will work one-on-one with clients, pulling in staff support when needed; how services are charged and at what cost; how the advisor is paid; what licenses, certifications and credentials the advisor has; what services does the advisor’s firm provide, such as retirement, insurance, estate planning and tax planning. You also want to ask about the advisor’s track record, how long he or she has been in business, his/her background and investment style. Investment style is important, as you may not feel comfortable with a too aggressive or too conservative approach when it comes to your money. Don’t forget to ask for references and really follow up. All should be taken into consideration.

Here are additional questions you should ask and discuss with every potential advisor you are considering:

What are your credentials? Are you registered with the SEC?
No matter the answer, do your own due diligence and find out what the credentials mean. There are a lot of different credentials out there and most sound impressive. An advisor registered with the SEC can be found at the SEC’s website [www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx].

Another great site to check out is FINRA’s BrokerCheck [http://www.nasd.com/home/Investors/ToolsCalculators/BrokerCheck/index.htm]. BrokerCheck is a free tool to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives.

What areas do you specialize in?
Advisors generally specialize in certain areas. You should ask this question before giving too much information about yourself and your situation. Be leery of the advisor who responds with “everything” or anything close to that.

How are you compensated?
Financial advisors are compensated in a number of ways. This is an extremely important question to ask because you want to be sure they are advising you with your best interests in mind. Advisors who are primarily compensated by commission are paid from selling you on particular investment packages.

Investment advisers generally are paid in any of the following ways:

  • A percentage of the value of the assets they manage for you
  • An hourly fee for the time they spend working for you
  • A fixed fee
  • A commission on the securities they sell (if the adviser is also registered with a broker-dealer) or
  • Some combination of the above

Each compensation method has potential benefits and possible drawbacks, depending on your individual needs. Ask the investment advisers you interview to explain the differences to you before you do business with them, and get several opinions before making your decision. Also ask if the fee is negotiable and if there are any additional costs involved beyond his or her compensation.

What is your investment methodology?
Does the advisor have a fundamental philosophy that guides his investment approach? If so, ask him to describe it fully. Many don’t have a formal approach to investment management; instead they merely sell a variety of investment or insurance products.

Why should I choose you?
This is a fair question, and the answer will reflect the advisor’s experience and depth of character. “The answer should be a reflection of the advisor’s skills and abilities, with an emphasis on how he can help you. Beware of any candidate who treats this question as an opportunity to disparage others. True professionals do not need to diminish the competition in order to make themselves shine,” suggests Edelman.

When you’re done with the interview, you need to ask yourself some questions:

  • Do you like the person you just met with? If not, move on.
  • Did what the advisor say make sense?
  • Did you feel comfortable with the person?
  • Are you comfortable in the advisor’s management style and investment style?

For more information on Summit Brokerage Services, an independent broker-dealer, visit www.joinsummit.com or contact us at (800) 354-5528.

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