February 1, 2017

Ask Your Financial Advisor These 6 Questions

Not everyone agrees that a financial advisor is necessary. Some of us are quite good at fiscal discipline, understand how investments work, and have the experience and temperament to handle our financial future on our own.

For the rest of us (me!), having someone who can help us minimize mistakes and help us reach our goals is prudent. Just like we shouldn't self-diagnose ourselves when a funny-looking skin growth appears somewhere on our body, our financial health benefits from guidance. 

In thinking about this post, I figured there are a probably two dozen questions or concerns I could come up with if I were hunting for a new financial advisor (which I am not).  But, that is a bit overwhelming. You might look at such an extensive list and assume that finding the right person is too difficult. 

So, I have trimmed the list of key questions to six. The answer to each might lead you to another question or two, and that is good. Though not on the list, the most important question is one you have to ask yourself: are you willing to put in the time and effort to make this selection a good one?

Like most of what I write on Satisfying Retirement, I know that your input and followup are what makes these posts helpful to all of us. My thoughts might suggest other questions or concerns that we need to consider. Your experience may raise a red flag that everyone needs to watch out for.  Since I make it quite clear I am not a financial wiz, take a look at my list and then add your ideas.

Important Questions to Ask a Financial Advisor

1) Do you understand and accept my tolerance for risk?

The only time I have had real issues with someone advising me is when he continued to bring me investment options that were too risky for me. Yes, I probably left a lot of growth on the table, but I slept better at night. Be sure the person you are talking to understands where you are on the scale from super-conservative to anything goes. Listen to what he or she has to say, but you are the ultimate judge.

2) How often do you suggest we look at rebalancing my portfolio?

Some advisors will suggest quarterly, others yearly, and others after a major stock market shift. My experience says the answer is, "when needed." To me, the worst time would be after a major bull or bear shift in the market. As I age, my investment horizon changes, meaning my investment balances between stocks, mutual funds, bonds, and cash does shift over time. If the person you are talking with suggests a frequent adjustment, I'd question if he isn't overly motivated by commissions. 

3) Where do you expect the market to go in the next year? Two years? 

This is sort of a trick question. If her answer doesn't  start with admitting no one really knows, walk away. Someone who understands their stuff should have general feedback on economic and political trends that will affect investments. But, if projections are too specific, you are with a salesman, not an advisor.

4) Will you develop a written financial plan for me?

THis is something basic that any decent financial advisor should do for you, in fact, should offer to prepare one before you have to ask. Having the approach you have discussed in writing allows you to feel committed to the plan. You have a document that helps keep you, and the advisor, focused on your goals. Of course, that plan will be updated as circumstances change.

5) How much contact should I expect from you? What is the best way for me to reach you?

I believe this is an important point to pin down early on. You should tell your advisor how often and under what circumstances you expect him or her to be in touch with you. Realize that a good advisor will be busy and can't call you or email constantly. But, if you need contact once every few weeks, once every few months, whatever meets yours needs, ask upfront. Discuss the options: phone calls, emails, or mailed updates on your portfolio. 

6) Do you work alone on my account or are others involved? Do they make buying and selling decisions?

Some larger firms have a "front man," the advisor who meets with you to handle all the steps above and regular contact. But, the actual management of your account could be handled by others in the office. While that isn't necessarily a bad thing, it is important that you are aware of such a setup. At the very least, insist that the other people know your feelings about risk and frequency of contact. Insist that the person you met with is aware of everything that might affect you so he or she can brief you as required.


  1. Bob,
    Good list, but I would add - How does the "advisor" get compensated/make money? This will most likely be a key driver of the answers to your 6. Newly retired (yesterday!) and enjoy your blog. Thanks, Dot.

    1. Yes, absolutely. Is the advisor compensated by a set fee or commissions on what is acquired and sold by your investment account? I won't take a position because there are too many variables to get into in a comment, but it an issue one someone should research further.

      Welcome to retirement, Dot.

  2. A couple more, Bob:

    1. Are you a fiduciary?

    2. References?

    Regardless of all the answers they give, check them out with the authorities. They may not have everything on the person but if their past was egregious enough, they probably will.

    1. And one more - what is their style/investment philosophy? If they specialize in growth investing but you prefer a more stable approach, you might want to move on.

    2. All good points. The second one really plays into the "how comfortable with risk are you?" Taking a more growth oriented approach will involve more risk simply because the markets often rely on emotion and a herd mentality, not pure logic.

      There has been change in the law regarding how a financial advisor must treat a client's investments. Whether this is one of the regulations the new administration or Congress will eliminate is an open question. But, even if done so, there is nothing to prevent a person from applying the standard to his/her own account. A Fiduciary is legally obligated to act in the clients' best financial interests. That is an excellent bar to set for the person handling your future!

  3. Concur that Fee vs Commission based is a pretty important question to ask as well. Much discussion on both sides, with Fee-based tending/seeming to be the most often recommended. Also, understanding how the money is transferred/managed. Meaning, no, a check should never, ever be written out in the name of the financial planner, only in the name of the financial institution the money is actually being invested in (otherwise, can you say 'Bernie Madoff???').

    1. I can say Bernie Madoff but only very reluctantly!

      Some of this decision really comes down to the "smell" test. If something just seems too slick, too polished, too formulaic, or the person won't look you in the eye while talking, and doesn't really listen to you, then your inner compass can probably "smell" something is wrong.

      Move on.

  4. Ha! I'm the opposite. My financial advisor has been trying to nudge me toward a more conservative mix of investments.

    Good pointers to think about when finding an advisor.


    1. Yep, different directions for different personalities and needs.

  5. Based on the low # of responses to this post, it would appear that a majority of retirees are more interested in the non-financial aspects of retirement; i.e. the emotional aspects and life after work aspects of retirement. You have the best retirement blog and your readers are really engaged.

    1. The readership to this post is solid. Maybe I answered everyone's questions! Actually, you are right. I occasionally dip into the financial area because it is consistently the #1 concern of retirees, but most posts deal with other aspects.

      One thing you will never find me doing is making any specific financial recommendations, other than spend less than you make, use a budget, and pay off your credit cards.

  6. How do I find a financial advisor in the first place?

    1. One way is to ask friends or coworkers who they use. It that isn't an option, then the Internet becomes your best friend. Do a Google search for financial advisors in your area. Then, spend the time necessary to research the ones that seem to be what you are looking for. The points in this post will help you narrow the search down to a few. Then, interview each in person. You should be able to tell if that individual is a good match.

      Remember that you are free to make a change any time you choose. A financial advisor who is right for you today may not be your best choice at some point in the future.

      All the major investment houses and banks offer financial planning services. But, I suggest you try to find someone who is independent. There is too big a temptation for an in-house financial advisor to steer you toward products and investments that are part of the corporate family.

  7. This list is really nice and will be useful for people who are going to consult a financial planner for the very first time. I also make investments in share market and discuss these things with my registered investment advisor Las Vegas. Now we are working on another investment.


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