6 Crucial Questions to Ask a Financial Adviser

To protect your investments, these are the questions to ask a financial adviser.

A financial advisor is someone who knows everything about your financial life. And while it’s not the same as a family member or significant other, finding the right one is a lot like dating. There are a lot of options out there, and you need to find the one that’s right for you. Protect yourself and your money by knowing what you need to ask before you meet with a financial adviser. Here are the top 6 questions to ask a financial adviser before you start investing:

1. Are you also a fiduciary?

While there are many important questions to ask a financial adviser, this one is at the top of our list for a reason. Finding out if your financial adviser is a fiduciary will assist you in determining if he or she really has your best interests at heart. There are many people in the financial world who believe that you should only work with investors who are also a fiduciary because it helps to protect you financially. If you decide that the best financial adviser for you is not a fiduciary, then be sure that you fully understand and agree with the criteria that they use to make investment selections for you. Keep in mind that if your financial adviser is also a broker, he or she may only be authorized to sell certain products, which could impact his or her overall objectivity.

2. How does your business make money?

Another one of the best questions to ask a financial adviser is on the topic of how a business makes its money. Every company needs to make money somehow. However, in the financial world, there is significant potential for dishonesty, so you have to be careful. When selecting an adviser, simply ask the person about his or her business model. If they are being upfront and honest, it shouldn’t take them long to answer this question. But if you feel that he or she is being vague and still not answering the question, this isn’t a good sign. For example, fiduciaries might charge you a fee of between 1-2% of your assets being managed. But if they inform you that you’ll be paying a commission-based fee instead, this might incentivize your financial adviser to sell more expensive investments that could have hidden fees. And when it comes to your savings, every dollar matters so it’s important to know where your money is going.

3. Can you assist me in preparation for tax time?

Financial investing isn’t about the money you earn. It’s also about maximizing the amount of money you keep. So why should you pay more in taxes than necessary? The best financial advisers out there can assist you with more than just recommending ways to invest your money. One of the most important questions to ask a financial adviser is to request that he or she optimize your portfolio to allocate certain investments to your taxable account versus a nontaxable account, such as an individual retirement account. It might be worthwhile to have one of the questions you ask also pertain to how they handle the high turnover of mutual funds, which can lead to capital gains taxes. An investment portfolio that is optimized to increase your savings at tax time can increase your return by as much as 1%.

4. How do you utilize technology to increase my portfolio?

These days, technological advancements have changed the way we work and play. While questionnaires about your financial goals and comfort-level for high-risk ventures is still a staple that has been used by financial advisers for years, it does not consider the larger picture of what’s impacting their client’s financial life. There are tools out there that can assist an adviser to track all of your accounts and make selections as your life changes. While this might not as critical for some, wealthy households could have twenty or more different accounts including investments and credit cards. Tech tools will allow the financial adviser you work with to consider these factors, so be sure the kinds of technology used is on your list of questions to ask a financial adviser.

5. Do you send out communications for buy/sell decisions?

When finding a financial adviser, it is important that his or her communication style matches your expectations and needs. One of the most crucial questions to ask a financial adviser is how proactive he or she is about communicating with clients when making buying or selling decisions. The manner in which your financial adviser provides thoughtful but transparent communication is essential in building and maintaining your trust. Some financial management firms have quarterly communications that explain every buy and sell decision. Other financial advisors send out weekly or monthly communications about the market, investment outlooks, and educational videos and whitepapers. Together, these communication resources will help you to feel more comfortable with your investments and empower you with the information you need to confidently monitor your accounts.

6. Are there any other services you provide?

When asking for financial advice, it would be a substantial benefit and cost savings for you if your adviser provides other services as well. Perhaps you have some stock options that you need assistance with managing, or have questions about either charitable giving or estate planning? As a paying customer, you should see what extra services your financial adviser can provide. Plus, it never hurts to least ask, right?

With this list of crucial questions to ask financial advisers, you are sure to create a viable and productive working relationship that will protect (and hopefully increase) the value of your investments. Preparing for your future can be a challenge, so it’s essential that you find an adviser that is right for you and your personal situation. Ask follow-up questions and be sure to get to the bottom of the situation so you understand where every dollar of your investment is going. Happy investing and be sure to let us know how it goes!

What are the most important questions to ask a financial advisor? Do you have any suggestions for our readers that we haven’t included in this article? If so, we would love to hear from you. Please post your thoughts by commenting below.