12 Questions to Ask a Financial Advisor

When you are looking to invest your money, it is important that you find a financial advisor who will be able to help you make the best decisions. A good place to start is by asking the right questions. Here are some of the most common questions clients ask when starting out on their investment journey.

12 Questions to Ask a Financial Advisor

1)  What is your background and what are your credentials?

Financial advisors should have a bachelor’s degree in finance, accounting, or economics. Some advisors may also hold designations such as CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), or CIMA (Certified Investment Management Analyst).

2) What is your approach?

Investing is not a one-size-fits-all equation. Financial advisors should be able to outline their investment style and philosophy, which typically includes a combination of risk tolerance, return objectives, and time horizon for investing. They should also explain the pros and cons of active vs. passive management, different types of investments such as stocks, bonds, and cash, and the different types of accounts such as RRSPs (Registered Retirement Savings Plans), TFSAs (Tax-Free Savings Accounts), and non-registered accounts. Some advisors also recommend a specific portfolio while others leave it up to the client to decide on their investment mix themselves.

3) What services do you offer?

You should consider asking an advisor for more than one opinion before you make your decision. Financial planners typically use a Financial Planning Model or Financial Needs Analysis to assess your current situation and recommend a long-term plan. Some financial advisors will provide more specific advice on retirement planning, estate planning, tax strategies, and insurance needs while others may offer services such as financial planning, investment management, and pension administration.

4) Are you a fee-based advisor? How are you paid?

Advisors may be compensated three different ways: commissions, fees or a combination of both. Commission-based advisors will often promote the products that pay them the highest commission. Fee-only planners, on the other hand, will charge a flat rate or hourly fee based on the amount of time they spent working on your file. They should also be able to clearly explain all the fees you are paying so you can easily compare different advisors and their services. Financial planners that receive compensation through commissions must give clients written notice when there is a possibility that the advice given could pose a conflict of interest.

5) Will you be my single point of contact?

Some financial advisors work alone while others team up with other professionals such as lawyers, accountants, tax specialists, and insurance agents. Financial advisors must clearly disclose any relationships they have with other professionals to ensure there are no conflicts of interest. Clients should ask their advisor if they are using affiliated service providers to avoid paying for duplicated services.

6) What is your investment strategy?

In general terms, an investment strategy can be defined as the overall plan for investing money. A good advisor should clearly explain their investment policy statement. Financial planners that adhere to the Financial Planning Model will typically use a combination of some or all of the following financial instruments: cash, equities (stocks), bonds, and real estate. Financial advisors that follow a more active approach may also invest in derivatives such as options, futures, and swaps.

7) Do you have any financial planning experience?

Many advisors that work with clients to develop a financial plan have backgrounds in accounting, law, or finance.  Others may have a bachelor’s or master’s degree in business administration. Financial planners that have the CFP designation are required to pass an exam testing their financial planning knowledge. Financial planners that work with clients to develop investment policy statements must also have the CFA designation.

8) How do you measure success?

Most financial advisors have a goal of making their clients money. Financial planners that follow the Financial Planning Model may use benchmarks to measure success. Financial advisors that follow a more active approach will often compare their strategy’s performance against an external index or mutual fund in order to determine how well their strategies are working for clients.

9) Do you have any financial planning designation?

These professional designations are awarded to individuals after completing education, work experience, and passing a certification exam. Financial advisors who hold a CFP® designation must adhere to a strict code of ethics as well as complete 30 hours of continuing education every three years. Financial planners with the CFA® designation must pass three levels of exams to achieve this designation, which is recognized around the world. Financial advisors that hold a Certified Financial Planner (CFP) designation will carry the designation’s Client Financial Specialist (CFS) credential to show that they have passed specialized training in financial planning.

10) What kinds of customers do you deal with on a regular basis?

Financial planners with their own firm, or working for a large financial institution, will often deal with all types of clients. Financial advisors that work for more specialized firms may typically deal exclusively with individuals, families, businesses owners, and/or senior citizens. There are also some professionals that specialize in high net-worth customers. Financial planners who follow the Financial Planning Model may only work with clients that have liquid assets between $100,000 and $1 million. Financial advisors working with this type of clientele must also carry liability insurance to protect themselves from lawsuits.

11) How often do you communicate with your clients?

Financial planners must communicate with their clients at least once per year in order to update financial plans and re-evaluate client objectives. Financial advisors working with clients with complex planning needs may need to meet with them more often than this.

12) Are you a fiduciary?

Financial advisors are required to act in the best interest of their clients.  Financial planners that follow the Financial Planning Model and hold a CFP® designation will be required to adhere to this standard as well.

The Bottom Line

Financial planners follow a wide range of different approaches to investing and financial planning. Before you choose a financial planner that meets your needs, it is important to ask relevant questions.  Asking the right questions will help you to make an educated decision about which financial planner is best for you. Learn more about the different kinds of financial advisors and the type of services they offer. Read more in this article: Understanding Financial Advisor Titles

Financial planning is a process of managing financial risks and creating financial opportunities. Financial planners work with individuals, families, businesses owners, employees, and/or senior citizens to create comprehensive personal or business financial plans. Financial planners determine the appropriate investment mix for their clients' portfolios by evaluating risk tolerance levels as well as understanding client objectives.
Professional designations are awarded to individuals who have completed education, work experience, and passed a certification exam. Financial planners may achieve one or more of these professional designations after completing education requirements at the university level as well as passing additional exams.
Financial planners are typically found in the local listings of the phone book or online. Financial planners may also be included in the listings of other professionals such as attorneys and accountants.
If you are managing your own investments, then a financial planner may be beneficial for you. A professional will review your entire portfolio and make recommendations based on your objectives, risk tolerance, and time horizon. Financial planners can also help with tax planning, saving for retirement, protecting against fraud, estate planning, and protecting against the effects of a disability or early death. Financial planners can also help with employee benefits, retirement plans, and other financial issues that may affect businesses.
Financial planners are paid in different ways. Financial planners may charge clients an hourly rate, flat fee, or based on the size of their portfolio. Financial planners typically bill for time spent working on your account at the end of each month.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.