Are you looking for a financial planner and wondering what questions to ask?
It’s easy to find lists of suggested questions online. These have been around for years and are nearly identical. That presents a problem.
Financial planners and advisors know what questions you’re going to ask them. They have well-rehearsed answers that may sidestep important details. That means you may not get the insights you really need.
For that, you need better questions.
Help Wanted: Good Financial Planner
Imagine you are the owner of a company and are looking to hire some help.
What questions should you ask an applicant? How-to guides all suggest these:
- What are your biggest strengths?
- What is your greatest weakness?
- Why do you want to work here?
What job applicant doesn’t know to expect these? And what applicant doesn’t know the “right” answers to each one?
“My greatest weakness? Well, gee, I guess I’d have to say that I’m a perfectionist. I really want to do a good job.”
Does that answer tell you anything? It sounds scripted. Rehearsed. All you really know is that the applicant has has read up on what to say at job interviews.
The same useless exchanges often happen when you look for a financial planner.
Here’s the Routine: Standard Questions for Financial Planners
Their list of 10 questions includes two related to credentials and experience. Three concern fees and other costs.
The rest are about services offered, types of clients, how plans are implemented, and identifying who you will work with. Planners are also asked about public disciplinary actions that may have been brought against them.
And Here Are the Standard Answers
You want an honest, knowledgeable financial advisor who provides the sort of services you need. One that communicates well and doesn’t overcharge.
Financial planners want to convey that they are that person.
- They communicate their expertise through professional designations and licenses. These show that the advisor has studied the subject, passed the necessary exams, and have agreed to follow a code of ethics.
- A discussion about fees will focus on what the planner will charge. Fees are often a percentage of the assets they will oversee for you.
- The advisor will confirm that they have other clients like you and that they can offer the services you need.
- You will be assured that there is a team of people to help you and that communication is a top priority.
So Where’s the Problem?
After you’ve heard these answers, what have you really learned?
- Do you really understand the role the planner is going to play in your relationship? Will they outsource the management of your assets to someone else, or do they do that work in-house?
- Can they judge when assets are overpriced, or do they simply use history as a guide when allocating your assets among stocks, fixed income and other assets?
- Do you understand the total cost of your relationship with the advisor?
- Will you work with the advisor you’re talking to, or will you be assigned to a junior member of the group?
- Are you confident that they will put your best interests first?
Choosing a Financial Advisor to Meet
The standard questions neglect that you can learn a lot about a financial advisor before you decide to meet.
Start with their website.
This is where an advisor can tell their story to current and potential clients. They can highlight their services, qualifications and way of working with others.
- Do they sound like real people?
- Do they focus on what they can do for you?
- Do they sound like advisors or sales reps?
Beyond providing a feel for a company, a website can provide a lot of useful details, too.
For example, if a planner works for a firm that is a registered investment advisor, you will find a link to documents that include a “Relationship Summary” (ADV 3), a “Brochure” (ADV 2) and a “Brochure Supplement” (ADV 2B).
This report provides lots of information about a firm’s services, employees, fees, investment philosophy and conflicts of interest.
Check That Background
If the planner claims to be a Certified Financial Planner professional, you can verify that through a CFP website.
If the website says that the adviser is regulated by FINRA, you can review and verify their background information. This includes employment history, licenses, registrations, and customer complaints.
And if their firm is a registered investment advisor, you can read background information about the company and its employees at the Investment Adviser Public Disclosure website maintained by the Securities & Exchange Commission.
Obviously, if the advisor you’re reading about has a checkered disciplinary history, it’s time to move on to a different candidate.
After doing your preliminary research, have you found a planner whose message resonates with you?
If so, let’s see what you can learn by taking the next step – an actual meeting.
Better Questions to Ask Your Financial Planner
More detailed questions will give you better insight about working with a particular advisor. Here’s are 10 that I suggest:
1. Is your company a fiduciary, meaning that my interests must be put first? Do you or anyone else in the firm sell financial products such as annuities?
This is a tricky area. Every financial planner would like clients to believe that their interests come first.
This isn’t always true. Those who sell annuities and other products are not always held to the highest duty of care. Depending on the regulations they are subject to, annuity sales representatives may be able to favor products that pay them high commissions.
This isn’t to say that you should avoid an advisor who also sells annuities, but it does mean that a bit of self-interest may color the recommendations you hear.
2. How do you determine how much of my assets should go into stocks, fixed income and other assets?
You can expect an advisor to tailor your asset allocation to your ability and willingness to accept risk.
But do they rely on historical return figures or rules-of-thumb when allocating assets? It can be dangerous to do so when, as is now the case with bonds, prices are at an extreme. Expected returns almost certainly will be far less than they have been historically.
An advisor who has some understanding of value may avoid overweighting expensive assets.
3. What stock investments do you recommend? Why do you recommend them?
Does the advisor recommend individual stocks or funds? What criteria do they follow? Do they rely on the judgment of others when choosing what to buy? Will they be able to answer your questions about individual investments?
4. How actively do you trade?
Active trading can mean a bigger tax bill. It may signal that your advisor is more of a trader than a long-term investor. Holding good investments for a long time is a more promising way to build wealth.
5. How do you evaluate how well investments are doing? What makes you decide to sell?
Does the advisor seem to have a disciplined approach to investing? You want someone who will be rational and able to keep you on track with your financial plan. Do you sense that this advisor will do that?
6. What additional fees are charged by the funds and other investments you use?
The answer here will be very revealing. Many investors wrongly assume that the fee they pay their financial planner is the only one they pay.
It’s often the case that there is another layer of expenses. The mutual funds or other investments you buy may have their own operating expenses.
7. What do you love about your job?
This is a great question suggested by Chris Hogan, author of Retire Inspired. It’s an unusual question for an advisor, and their answer will tell you a lot about what motivates them.
8. How do you communicate with clients? How often do you check to see if my financial plan is up-to-date?
You want to know that your financial plan continues to be right for you. Your advisor should be willing to conduct an annual review. You can make them aware of any changes in your situation that might prompt a change to your plan.
9. I have certain stock investments that have gone up a lot, and I would pay a lot in taxes if I sell. Can you give me some options for pursuing a financial plan while reducing the tax bite?
A planner should offer to coordinate with your tax advisor. This shows that they are sensitive to your concerns and willing to help.
Alternatively, do you get the idea that the advisor is mostly trying to maximize their fees?
10. I have a retirement plan at work. As I get close to retirement, can you advise me on what to do with this plan? How should I think about my options?
This is another good test.
A good financial advisor will help you examine all your options, which may include keeping your current plan after you retire or transferring assets to an IRA. You don’t want to hear a recommendation that’s based on the self-interest of the advisor.
Questions for Your Current Financial Advisor
If you already have a financial advisor, the following are good questions to ask during a review of your financial plan:
1. Have you set aside cash to meet the withdrawals I plan to take this year?
You may sleep better at night if you know that cash has already been set aside for planned expenses. You won’t face the risk of having to sell at a bad time in the market.
2. Do any changes in my situation call for a change in my financial plan?
You want your financial planner to give an objective opinion about how well your investment strategy and decisions match your needs.
If you’re withdrawing too much money from your account, your advisor should tell you that you’re jeopardizing your long-term goals.
3. Are there any changes in tax laws or regulations that affect how I should invest?
As rules change, an advisor may be able to suggest strategies that can help you save.
4. Should I change my asset allocation in response to big moves in the stock or bond market?
A market sell-off makes people nervous. A key benefit of having an advisor is to help you make sound decisions during such times.
A good advisor will counsel you to expect markets to be volatile from time to time. They will have developed your financial plan with this in mind. When markets do become volatile, it will be a bit easier for you to take.
5. Am I missing anything that should be in my financial plan?
Your advisor can let you know if you’re missing important paperwork, such as a power of attorney or emergency contact. They can also ask whether beneficiary and other information is still the way you want it.
Evaluate What You’ve Heard
Now ask yourself some questions:
- Does this advisor listen to what I’m saying?
- Do I understand things better, or am I more confused?
- Am I confident that my interests are being put first?
If you feel a change may be in order, give us a call to discuss your situation.
Our clients have the benefit of two CERTIFIED FINANCIAL PLANNER™ professionals at our office in Omaha, Matt Holloway and Katerina Wiese.
We’re a financial advisor from the Old School. The advice you get from us will be the same we’d give a member of our own family.
Barry Dunaway, CFA®
America First Investment Advisors, LLC
This post expresses the views of the author as of the date of publication. America First Investment Advisors has no obligation to update the information in it. Be aware that past performance is no indication of future performance, and that wherever there is the potential for profit there is also the possibility of loss.