8 Questions to Ask Your Financial Advisor
Updated: May 9, 2022
You’ve worked so hard for your money. Now that you have some savings and want to start planning for achieving the dream of financial freedom, where do you even begin?
Many will point you towards looking for a financial advisor, but how do you choose one? And how can you tell if the person you’re talking to is the right fit for your financial goals and plans?
Read on to find out what questions you should be asking your financial advisor before choosing to entrust them with your financial planning journey.
1. Are you a fiduciary?
The answer you need to be looking for is “yes”. This is the single most important question to cover before deciding to work with a financial advisor.
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person. Simply put, a fiduciary is legally bound to put your best interest ahead of their own -- even if this means less commission for them.
2. How are you paid?
Your financial advisor’s compensation falls into 3 categories -- this is worth looking into. Here’s why.
These advisors are usually compensated for products that they sell to their clients. When a client opens an account with a commission-only advisor, you’ll likely be paying a commission, making it their only way to earn.
This means that advisors may have no real incentive to continue to manage your investment or account on a frequent basis. They may even encourage you to purchase another product so that they’re able to earn from the commission.
These advisors charge you a fee for advice (or a percentage of your asset base). They can also sell products for a commission at the same time. Like the commission-based category, they may only be incentivised to sell you products which are earning them a good percentage or commission.
This is not the most common type of advisor, but fee-only advisors are only compensated by clients. They do not earn from commissions on products or get compensation when referring clients to products.
Unlike the previously mentioned compensations, they only earn directly from clients upon providing advice -- which means they are not incentivised to offer their clients products that may not be the best fit for them.
3. Are you working for an independent advisory?
This refers to whether the advisor is representing an insurance company that only sells products from the company they’re working for, or if they’re an independent advisor with access to products from the wide spectrum of companies available.
This is important to know as choosing an advisor with access to products from a single company may limit your options in getting the best product that suits your needs.
It may also be helpful to do your research to compare products between companies yourself.
4. What happens to my account if you leave the company
When purchasing a plan, you’re buying for the long term. What happens if your advisor were to leave the company or industry?
You have to ensure that your needs are also considered in the future in case something happens.
5. How many years have you been in the industry?
This will give you a better idea of their level of experience. You’ll want to know whether they’ve weathered financial crises and how they’ve handled client’s portfolios during those times.
Especially in tough markets, you need an expert advisor the most.
6. Tell me what you see as my financial goals and objectives
This is actually a question that they should have asked you when getting to know your goals as a client.
However, by asking this, you get to understand if the advisor is on the same page as you. This also enables the advisor to clarify doubts or questions they may have about what you would like to achieve or are looking for. You’ll then get to hear a bit about your potential advisor’s approach to addressing your financial goals.
Most of all, this is a good way of finding out whether your financial advisor is actually listening to you and has taken note of the goals you should be working towards together.
7. What does your client base look like?
This will give you insights into the type of clients and experience your potential advisor could have. If there are many other clients with similar account sizes as yours, you’re likely in good hands as the advisor is experienced with handling clients with similar profiles to yours.
8. How often can I expect to hear from you about my account?
This gives you a rough gauge of how frequently your potential advisor will relook your portfolio to ensure that it is at optimum performance. Asking this also allows you to understand how much time the advisor dedicates to each client.
Depending on what you’re looking for and your financial goals, this enables you to decide better.
Piecing it all together
In summary, when choosing a financial advisor, it’s important to ask these questions to your potential advisor before deciding to engage him or her. After all, you’re entrusting your financial future in the hands of someone else. For your peace of mind, selecting a person who works in your best interests is worth taking a look at.
If you need more advice about getting a financial advisor, we can refer you to people in the financial consulting industry. If you’re considering buying insurance or looking at investments to pave your way to financial freedom, feel free to ask us for our referral to people in the industry.