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Top 10 Questions To Ask A Financial Advisor – Including One Key Question Only Finance Pros Know To Ask

Introduction

The thought of having someone else manage your life savings is daunting, to say the least. Overcoming that valid concern is a task on its own, and shopping for one is more challenging.

That said, having a second set of eyes cross-check and suggest the most efficient route for your finances is something most individuals need or will need down the road.

So here’s a list of questions and a free download to help you have a positive shopping experience!


1. Are you a fiduciary? 


Why is this important? 

Fiduciaries must base their decisions and recommendations on the best interest of their clients. In contrast, broker-dealers only need to recommend products that are only “suitable” even if there is a more cost-efficient or growth-efficient product that’s more ideal.


2. Are you dually registered as a fiduciary & broker?


Why is this important? 

The title of this article wasn’t just a tease. This is often the question that can make or break your decision. Unfortunately, it’s not widely known. Advisors don’t have to choose between registering as a fiduciary or a broker. They can register as both.

Yes, they can wear both hats and offer advice in your best interest, then take that hat off and sell you a product that is simply “suitable” for you. 

I’ve always viewed this to be a conflict of interest, as there is no way for an average investor to tell which hat they have on when they provide a recommendation. According to advisorhub.com, there are 307,500 dual registrant advisors, 305,000 solely registered brokers, and a mere 77,500 investment advisers solely registered as fiduciaries.

Both roles have pros and cons; it boils down to clearly understanding what to expect from your advisor and how they can help you accomplish your overall financial goals.


3. What are my total fees all-in?


Why is this important?

“Fee-based” and “Fee-Only” differentiates the fee structure between a broker/dealer and an investment adviser. Dual Registrant Advisors fall under the “Fee-based” umbrella, whereas Investment Advisors not dually registered fall under the “fee-only” umbrella. 

See below: 

Fee only financial advisor

In addition to their management fee, confirm any additional costs, such as trade fees or other expenses you may incur from your current investments for making the switch.


4. Who makes investment decisions for client portfolios?


Why is this important?

If the individual you’re interviewing is the decision maker, it’s time to dig deep and know their qualifications better. You can request a copy of their Form ADV or get a free copy from the Investment Adviser Public Disclosure website. I also recommend investors check for disclosures at www.brokercheck.com.


5. What’s your investment approach?

Why is this important?

Understanding their investment philosophy plays a large part in setting expectations for your portfolio and whether or not it’s in sync with your investment style.


6. How do you manage current client relationships?


Why is this important?

This question helps you understand how available they’ll be for you and how proactive they are. Do they meet with clients quarterly or annually, or more if needed? Do they have an assistant that takes care of the operational aspects? How quickly do they respond to phone calls or emails? Are they hiding under their desk when the market is volatile, or are they ready to talk you off the ledge? After all, the key to a good adviser is ensuring you don’t lock in your losses by selling when the market is down. 


7. How do you diversify portfolios?


Why is this important?

You don’t want to keep all your eggs in one basket, but you should want to spread them out strategically. 


8. Do you use a custodian?

Why is this important?

A custodian is an independent institution that holds your assets and investments. Reputable advisors always use a custodian; you should run for the hills if you find one that doesn’t. The last thing you want is to fall victim to a Ponzi scheme. Ever heard of Bernie Madoff?


9. Will I incur tax implications if I make the switch?


Why is this important?

Financial Advisors aren’t Tax Advisors, but they should be able to spot potential taxable events if you hypothetically make a move.


What other financial services do you offer clients?


Why is this important?

Some firms have in-house services that correlate with their client’s needs, such as tax and estate planning. If they don’t, ask if they have a network of professionals, they can refer clients to.

Download this questionnaire for free today.
No email needed.