10 Key Questions to Ask Your Financial Advisor

Using the services of a financial advisor is a smart idea if you’re unsure how to manage your portfolio or don’t know what to do with a large inheritance. Not all financial advisors are created equal, however.

You’re relying on your financial advisor for their expertise but it remains very important to ask questions and gain an understanding of what they do, how they do it, and what strategies they’re trying to employ. It’s important to ask the right questions to ensure that you’re getting the best products for your goals and needs.

1. What Services Do You Offer?

It’s important to understand what services a financial advisor offers and their specific areas of expertise before you begin working with them. Ask if they offer services in investment management, retirement planning, wealth management, tax advice, and estate planning if you’re seeking financial advice in a broad range of areas.

Quiz your financial advisor about whether they have expertise in that area if you need specialty financial advice, such as business planning. Ask what practical experience they have with providing business-planning services to help manage cash flow and prepare for growth opportunities.

You may also want to know if your advisor offers financial education to help you navigate and make sense of more complex financial concepts if you’re just starting your financial journey. Continued learning helps you develop sound financial habits and make better-informed financial decisions.

Don’t be afraid to ask if they can refer you to someone who may be better able to assist you if your advisor doesn’t have experience in the area you need. Financial advisors who offer the services you require help provide financial security and peace of mind.

2. What Is Your Investing Philosophy?

Each financial advisor has a different approach as to how they generate a strategy. An investing philosophy is the set of standards and principles used to create that strategic plan. Your financial advisor will be able to easily communicate to you how they intend to help you achieve your financial goals if their investing philosophy is well-defined.

An investing philosophy is also constructed over time. It’s heavily reliant on previous experiences and knowledge of what has or hasn’t worked in the past. This is an incredibly important question to ask of younger, more inexperienced advisors because they may have less historical knowledge of how financial markets have performed under certain circumstances. Older financial advisors may be set in their ways, however, unaware of more modern approaches to achieving financial success.

You and your financial advisor should have compatible investing philosophies. You may prefer value stocks while your advisor has had tremendous success pursuing growth companies. You may be more interested in socially responsible investing while your advisor is more focused on profits and less on environmental impacts.

No worries if your philosophies aren’t compatible. Just be mindful that you and your advisor must communicate through different viewpoints to make sure each of you respects the approach of the other.

3. How Much Do You Charge?

It’s always a good idea to know what your costs will be upfront. You can rest assured that they have little to no financial incentive to have you invest in certain ways if your advisor is paid a fixed fee and doesn’t earn commission on product. Your advisor may even be incentivized to see your portfolio grow if their fees are contingent on your portfolio balance because this means more fees for them.

In addition to a management fee, your advisor may receive a commission on products they sell to you. These products include insurance plans, annuities, or private security offerings. Ask your advisor if they’re associated with any commission-based products because they may offer you these items when they may not be in your best interest. The U.S. Securities and Exchange Commission has some strict rules regarding this practice.

Another option is to consider your choices for restructuring fees. You may be able to negotiate different or scaling payment terms with a larger portfolio balance.

4. What Are Your Qualifications?

Learn what certificates your advisor holds. Many firms only require that their advisors take minimal courses. You want to avoid these. The financial industry is always changing and you’ll want someone who’s most in tune with the latest happenings in the sector. Look for one of these three types of advisors instead:

It’s also a good idea to choose an advisor who has at least a decade of experience dealing with clients with needs and goals similar to your own. You also want your advisor to have a clean record. They haven’t had issues with regulators or the law. It might be wise to ask if they’ve ever been sued. Public records are often available online through state governments or professional membership groups that can identify your advisor’s background.

You also may want to ask about the advisor’s specialty and how many clients they take on each year. This will give you a feel for the market segment the advisor focuses on, if any, and the breadth of investing advice they offer.

Some investors may want someone focused on a market niche while others appreciate a broader range of advice. The more designations and experience your advisor has, the more they will probably charge in management fees, however.

5. Do You Have a Fiduciary Duty to Me?

Ask your financial advisor if they have a fiduciary duty to you and request the declaration in writing. This simply means that your advisor is legally and ethically bound to put your best interests ahead of their own. Financial advisors can be held to different standards of care depending on their licensing and credentials. It’s therefore important to clearly understand what their obligations are to you.

It’s also worth being aware that not all financial advisors are fiduciaries. Some may serve as fiduciaries for one area of the relationship but not in others. Their obligation to act in your best interests ahead of theirs may vary in this case depending on the services they provide.

A key benefit of working with a registered investment advisor (RIA) or a certified financial planner (CFP) is that they’re required to provide a fiduciary duty to their clients. They must disclose any conflicts of interest and work to eliminate them under this standard, helping to give you peace of mind that your interests are being put first.

Regulators frequently review fiduciary-duty requirements so it’s essential to periodically review your financial advisor’s obligations. They may change over time.  

6. What Investment Benchmarks Do You Use?

It’s important to determine how your investments are performing relative to other benchmarks. Investment standards provide a way to compare your investments against the broader market or specific sectors.

Ask your advisor if they use benchmarks such as the Dow Jones Industrial Average (DJIA) or the S&P 500 Index (S&P 500) if you’re seeking advice on a large-capitalization stock portfolio. Ask if they use the tech-heavy Nasdaq Composite Index as a benchmark if you want guidance on investing in technology stocks. Several other types of benchmarks also may be used to measure performance. 

Ask if they use gauges like the Bloomberg Aggregate Bond Index if you plan to set up a fixed-income component to your portfolio. Many investors use this as a benchmark to assess the performance of U.S. investment-grade bonds.

Real estate investors who require advice should ask their advisors if they track closely followed sector gauges like the FTSE NAREIT All Equity REITs Index, a benchmark that tracks the performance of publicly traded real estate investment trusts (REITs). Using benchmarks to measure your investment performance over time helps to evaluate the performance and success of a financial advisor’s investment strategy.

7. Do You Offer Hybrid Robo-Advisor Services or Access to New Technologies?

Robo-advisor technology and advanced personal financial management platforms are being integrated across the financial advisor market. Many large firms are partnering with robo-advisors and new technologies to help their investment clients access the best and most up-to-the-minute opportunities for trading their accounts individually and with the help of their advisors.

Technology and personal account management can also be a big factor in choosing an advisor because many investors look for the greatest transparency in communicating with their advising company and following their accounts online. Hybrid robo-advisor platforms can also offer some of the best channels for receiving the most well-vetted access to firm offerings and market insights.

This criterion is still important for you to evaluate even if you’d prefer to work directly with a human at all times. Firms may attempt to reduce overhead costs by limiting the scope of in-person financial advisor services and encouraging customers to use digital means of communication to address some financial topics.

8. What Are the Best Options for My Liquid and Illiquid Funds?

Most investors want to focus on liquid savings and retirement with help from their advisors along the way. A liquid savings fund is typically the first line of defense for personal investments and can be one of the first reasons to start talking with an advisor. Liquid funds can be used for emergencies or savings for miscellaneous purchases. Talking with your advisor about the best options for this type of portfolio can be one of the most important questions to discuss.

Illiquid funds are set aside for long periods. This money is being saved for retirement and is often locked up in tax-sheltered accounts. It often can’t be accessed until an investor reaches a certain age.

It’s important to understand your advisor’s approach to both types of funds. The financial strategy behind them is very different and your advisor should have a different approach to risk for short-term and long-term holdings. They should also be aware of your shorter-term goals and whether you might need access to funds sooner rather than later and you don’t want as much volatility impacting these holdings.

9. Which Custodian Do You Use?

A custodian holds and safeguards your investments such as stocks, bonds, mutual funds, and other securities. It’s therefore crucial that your financial advisor uses a credible custodian to avoid counterparty risk. Ask what custodian they use. It’s important to inquire about the custodian’s fee structure, security processes, and technology capabilities. 

Ask what percentage of your investment that fees represent. These costs can significantly eat into investment returns if a custodian charges fees on everything from account opening to inactivity charges. Ask who regulates their custodian, if it has had previous security-related incidents, and if it has a reputable standing within the financial services industry.

Inquire about what procedures it has in place to prevent fraud, theft, and other unauthorized activity. It’s also crucial to ask about the custodian’s technology, ensuring that its platform provides intuitive, secure access that makes it straightforward to securely view your account information. Respected custodians include Charles Schwab, Vanguard, and Acorns.

10. How Often Should I Review and Update My Financial Plan?

It’s crucial to regularly review and update your financial plan as your financial goals and market conditions evolve. What may have been suitable 12 months ago may not align with your current situation. Meet with your financial advisor at least once a year to provide updates about your financial circumstances. Review your investment returns to ensure they’ve met your objectives. Schedule virtual meetings to stay in regular contact if you can’t meet in person.

You may even opt to review and update your financial plan semiannually if there’s a significant change in your investment goals, income, tax laws, or interest rates. Your budget or savings plan may need adjusting to better reflect your updated financial position if you’ve recently changed jobs.

A change in tax laws could save you thousands of dollars by tweaking your investment portfolio. It’s also a good idea to review and update your financial plan if there’s a substantial change in interest rates, especially if you have debt or you’re saving for retirement. 

The Bottom Line

Hiring a financial advisor can assist in managing your investment portfolio or any other money-related matters but they’re not all created equal. It’s important to ask probing questions before you sign on as a client to ensure that your advisor has the necessary expertise and experience to tailor solutions to your specific financial needs.

Ask questions in your initial meeting about the types of services they provide, their investment philosophy, how much they charge, whether they have a fiduciary duty, what investment benchmarks they use, whether they offer robo-advisor services or access to new technologies, what custodian they use, what the best options are for your liquid and illiquid funds, and how often you need to review and update your financial plan.

Having the answers to these questions will give you the necessary information to determine if the financial advisor is the right fit for you.