Using a financial advisor is a smart idea if you are unsure how to manage your portfolio or don’t know what to do with a large inheritance. However, not all financial advisors are created equal, and some might be trying to line their own pockets with commission-based sales of financial products, rather than give you the best advice for your investments and retirement planning.

Although you are relying on your financial advisor for their expertise, it remains very important to ask questions and gain an understanding of what your advisor does, how they do it, and what strategies they are trying to employ. Here are 10 questions you should consider asking your advisor this year to ensure you are getting the best advice.

These questions will help you gather information to make a decision about hiring a financial adviser who will best serve your needs:

1. What Services Do You Offer?

Before working with a financial advisor, it’s important to understand what services they offer and their specific areas of expertise. If you are seeking financial advice in a broad range of areas, ask if they offer services in investment management, retirement planning, wealth management, tax advice, and estate planning.

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

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

If your advisor doesn’t have experience in the area you need, don’t be afraid to ask if they can refer you to someone who may be better-suited to assist you. Ultimately, financial advisors who offer the services you require help provide financial security and peace of mind.1

2. What Is Your Investing Philosophy?

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

An investing philosophy is also constructed over time, 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 financial advisors, as they may have less historical knowledge of how financial markets have performed under certain circumstances. Alternatively, older financial advisors may be set in their ways, unaware of more modern approaches to achieving financial success.

It’s important that you and your financial advisor have compatible investing philosophies. You may prefer value stocks, for example, while your financial 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. If your philosophies aren’t compatible, no worries—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 is a good idea to know what your costs will be upfront. If your advisor is paid a fixed fee and doesn’t earn commission on products, you can rest assured they have little to no financial incentive to have you invest in certain ways. If their fees are contingent on your portfolio balance, your advisor may even be incentivized to see your portfolio grow as this means more fees for them.

After learning your advisor’s cost structure, evaluate the benefit of their service against what you are paying. Keep track of your portfolio’s growth (or lack thereof), and observe whether you think your advisor is worth the performance you have been receiving.

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 are associated with any commission-based products, as your advisor may offer you these items when they may not actually be in your best interest.2

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

4. What Are Your Qualifications?

Learn what certificates your advisor holds. Many firms will only require their advisors to take minimal courses. You want to avoid these advisors, as the financial industry is always changing and you’ll want someone most in tune with the latest happenings in the sector.1 Instead, look for one of these three types of advisors:

• Certified Financial Planner (CFP)
• Chartered Financial Analyst (CFA)
• Certified Public Accountant (CPA)

It’s also a good idea to choose an advisor who has at least a decade of experience dealing with clients similar to you. You also want your advisor to have a clean record, meaning they have not had issues with regulators or the law. It might also be wise to ask if they have ever been sued. There are often public records online through state governments or professional membership groups that identify your advisor’s background.3

Within this realm, you also may want to ask about the advisor’s specialty and how many clients they take on each year. This will help you to get 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. Be advised that the more designations and experience your advisor has, the more they will likely charge in management fees.

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; therefore, it’s 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. In this case, their obligation to act in your best interests ahead of theirs may vary, 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 are required to provide a fiduciary duty to their clients. Under this standard, they must disclose any conflicts of interest and work to eliminate them, helping give you peace of mind that your interests are being put first. As regulators frequently review fiduciary-duty requirements, it’s essential to periodically review your financial advisor’s obligations, as they may change over time.  

6. What Investment Benchmarks Do You Use?

When investing, 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.

If you are seeking advice on a large-capitalization stock portfolio, for example, ask your advisor if they use benchmarks such as the Dow Jones Industrial Average (DJIA) or the S&P 500 Index (S&P 500). Similarly, if you want guidance on investing in technology stocks, ask if they use the tech-heavy Nasdaq Composite Index as a benchmark. Several other types of benchmarks also may be used to measure performance.5 

If you plan to set up a fixed-income component to your portfolio, ask your financial advisor if they use gauges like the Bloomberg Aggregate Bond Index, which many investors use as a benchmark to assess the performance of U.S. investment-grade bonds.

Real estate investors requiring advice should ask their advisor 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 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.6

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

If you’d prefer to work directly with a human at all times, this criterion is still important for you to evaluate. 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.

Some firms will make the decision for you about how often you have to use technology as an advisory client.

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 a financial advisor. Liquid funds can be used for emergencies or saving for miscellaneous purchases. At the very least, talking with your advisor about the best options for this type of portfolio can be one of the most important first questions to discuss.

On the other hand, illiquid funds are set aside for long periods of time. Often locked up in tax-sheltered accounts, this money is being saved for retirement. 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 both is very different, and your advisor should have a different approach to risk for short-term and long-term holdings. Your advisor also should be aware of your shorter-term goals and whether you might need access to funds sooner rather than later and 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, therefore, it’s crucial your financial advisor uses a credible custodian to avoid counterparty risk. As well as asking what custodian they use, it’s important to inquire about the custodian’s fee structure, security processes, and technology capabilities.7 

Regarding fees, ask what percentage of your investment they represent. These costs can significantly eat into investment returns if a custodian charges fees on everything from account opening to inactivity charges. Security-wise, ask your financial advisor 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 its platform provides intuitive, secure access that makes it straightforward to securely view your account information. Respected custodians include Charles Schwab, Vanguard, and Acorns.

Knowing your financial advisor uses a trusted custodian gives you confidence that your investments are safe and working toward your financial future.

10. How Often Do I Need to 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. At a minimum, it’s important to meet with your financial advisor at least once a year to provide updates about your financial circumstances and review your investment returns to ensure they have met your objectives. If you can’t meet your financial advisor in person, schedule virtual meetings to stay in regular contact.

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. For example, if you have recently changed jobs, your budget or savings plan may need adjusting to better reflect your updated financial position.

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

Can I Trust My Financial Advisor?

By asking your financial advisor questions and better understanding their background, you will be able to determine whether you feel comfortable with them overseeing your finances. Ask them about their qualifications, experiences, fee structure, and philosophy to gauge whether you’d still like to hire them and use their services.1

What Should I Ask My Financial Advisor?

It’s a great idea to start your new relationship with a financial advisor by understanding their strategy and approach to investing. This investing philosophy often drives how they make decisions and will have a large impact on how your portfolio is managed.

What Fees Does My Financial Advisor Charge?

Your financial advisor may charge fixed management fees, fixed retainer fees, hourly consulting fees, or fees based on the total assets under management. Your financial advisor also may receive commissions, though you don’t pay for that. To better understand your advisor’s fee structure, ask them what they charge.

The Bottom Line

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

In your initial meeting, ask questions 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, whether you can trust the financial advisor, what are the best options for your liquid and illiquid funds, and how often you need to review and update your financial plan. Having the answer to these questions will give you the necessary information to determine if the financial advisor is the right fit for you.