If you’re planning to consult with a financial advisor and are thinking about booking your consultation, it’s important to go prepared to get the most out of that meeting.
In this article, we asked a Certified Financial Planner® about the top smart questions clients have asked during consultations. We gathered this information to cover all the necessary questions that are important to ask.
These questions will help you determine whether the financial advisor is the right fit for you, whether they understand your exact situation, and, most importantly, what results and quality of service you should expect to receive.
EDITOR’S NOTE: The questions in this article are gathered and answered by Trevor Randall CFP®, MSPFP, RICP®, President and CEO of Randall Wealth Group, recognized as the best financial consultant by the Long Beach award program.
Before the first consultation, do your homework!
Before meeting with a financial advisor, it’s important to do some homework. Start by identifying your goals and understanding what you want to achieve with financial services.
Next, determine the specific services you need to achieve your goals, whether it’s retirement planning, income planning, investment management, or estate planning. Make sure the advisor offers services that align with your requirements.
Additionally, research potential advisors to ensure they are certified and qualified in your preferred services. Check their credentials, such as Certified Financial Planner® (CFP®) or Chartered Financial Analyst® (CFA®), and verify their professional background and reputation by reading reviews or asking for references.
After completing these steps, you can confidently book a consultation and ask detailed questions to find the best advisor for your needs.
Questions to Ask Financial Advisors During the Meeting
After getting a clear picture of your financial needs, it’s important to ask the right questions to the financial advisor to ensure they are the right choice for your situation. Assuming that you have already done research about the advisor, we are not going to ask questions about his certifications and services they provide, instead focus more on the question that you cannot find the answers on the Internet.
Based on my experience and deep understanding of the profession I have made a list of essential questions, with the insights into what acceptable answers look like and what might be red flags.
How does the compensation work?
These listed questions aim to clarify how the advisor is paid and ensure fee transparency. Before starting to work with the advisor you should have a full understanding of how the advisor is going to be paid and that there are no hidden fees.
How do you get paid, and how much should I expect to pay you per year?
Understanding both the advisor’s compensation structure and the annual cost ensures transparency and helps you assess potential conflicts of interest while budgeting for their services. Make sure that you get clear explanations of fee structures, such as fee-only (paid directly by you) or fee-based (a combination of fees and commissions), as well as a straightforward explanation of annual fees.
Acceptable Answer: “I can get paid multiple ways and it depends on the type of business we do and how involved I am in your investment. I can get paid hourly, commission, through a management fee, or a mixture of commission and a management fee. My hourly fee is $450 and my management fee is 1% annually based on the account value. The management fee doesn’t apply to cash, CDs, Money Market Funds, or Treasury Bills for existing clients. If I get paid a commission, it comes from the insurance company, not out of your investment, and will vary per company and per product we use. These fees cover all comprehensive financial planning, regular reviews, and any other help I can provide.”
Red Flag: “It’s complicated,” or any answer that is vague and lacks clarity. This lack of transparency can indicate potential conflicts of interest and hidden fees.
Will you sign an agreement regarding your compensation?
An agreement formalizes the compensation structure and ensures both parties are clear on the terms. Pay attention to a willingness to document compensation agreements in writing.
Acceptable Answer: “Yes, I provide a written agreement that outlines my compensation structure and the services included.”
Red Flag: “No, we don’t need to sign anything.” This lack of formal agreement can lead to misunderstandings and disputes over fees.
How Do You Evaluate Client Fit?
These questions help determine if the advisor’s typical client profile matches your situation. They also reveal the range of services offered and whether the advisor collaborates with other professionals, like CPAs or attorneys.
Are you a fiduciary?
Ensuring that your advisor is a fiduciary means they are legally obligated to act in your best interest.
Acceptable Answer: “Yes, I am a fiduciary. As such, I am legally obligated to prioritize your best interests above all else. This means that I will always act with transparency and integrity, ensuring that any recommendations I make are solely aimed at helping you achieve your financial goals.”
Red Flag: “I operate under a suitability standard, which means I am only required to recommend products that are suitable for your situation.” This answer suggests that the advisor may not be bound by fiduciary duty and could prioritize their own interests or those of their employer over yours.
Do you work with CPAs or attorneys?
Knowing if the advisor collaborates with other professionals ensures a holistic approach to your financial planning.
Acceptable Answer: “Yes, I regularly work with CPAs and attorneys to provide integrated financial and legal advice for my clients.”
Red Flag: “No, I handle everything myself.” This might indicate a lack of collaboration and expertise in one area, which can be crucial for complex financial situations.
What kind of people do you normally work with?
Checking the advisor’s typical client profile helps you assess if they have experience with clients in similar situations to yours.
Acceptable Answer: “I typically work with individuals and families who are planning for retirement, as well as small business owners and professionals.”
Red Flag: “I work with anyone and everyone.” This lack of specialization may suggest they don’t have deep experience in your specific needs.
How to find out the Investment Strategy and Management?
These questions reveal the advisor’s approach to investing, how they measure success, and logistical details about asset management.
What’s your investment philosophy?
Understanding the advisor’s investment philosophy ensures that their approach aligns with your risk tolerance and financial goals.
Acceptable Answer: “I believe in a diversified, long-term approach to investing, focusing on a mix of asset classes to balance risk and return.”
Red Flag: “I just follow market trends.” This shows a lack of a structured strategy and possible market timing, which can lead to inconsistent results.
What asset allocation will you use?
Knowing the advisor’s approach to asset allocation helps you understand how they plan to balance your portfolio.
Acceptable Answer: “Your asset allocation will be based on your risk tolerance, time horizon, and financial goals, typically including a mix of stocks, bonds, and alternative investments.”
Red Flag: “I use a standard allocation for all clients.” This suggests a one-size-fits-all approach, which may not be optimal for your unique situation.
How will you track my investment performance?
Figuring out how your advisor will monitor and report on your investments helps ensure transparency and accountability.
Acceptable Answer: “I provide quarterly performance reports and conduct annual reviews to ensure your portfolio is on track to meet your goals.”
Red Flag: “I’ll let you know if something major happens.” This lack of regular reporting can lead to a lack of visibility and transparency in your investment performance.
What investment benchmarks do you use?
Asking about the benchmarks used to measure performance helps you determine how well your investments are doing relative to the market.
Acceptable Answer: “I use a combination of market indices such as the S&P 500 for equities and the Bloomberg Barclays Aggregate Bond Index for fixed income to benchmark performance.”
Red Flag: “I don’t really use benchmarks.” This shows an absence of a systematic approach to measuring investment success.
What is the minimum amount for investment?
Acceptable Answer: “We have a minimum investment requirement of $200,000 to open an account with our firm. This ensures that our clients are committed to their financial goals and allows us to provide personalized investment strategies tailored to their needs.”
Red Flag: “We don’t have a minimum investment requirement.” While this may initially seem favorable, it could indicate that the advisor may not have a structured approach to managing investments or may not prioritize clients with larger portfolios. The advisor may be stretched thin and attention to your portfolio may be lacking if their energy is put towards many smaller portfolios.
Who is your custodian?
A custodian is a financial institution that holds your assets for safekeeping, ensuring their security and accurate record-keeping. Knowing who holds your assets ensures they are kept with a reputable, independent third party.
Acceptable Answer: “My custodian is Charles Schwab, a well-known and respected firm in the industry.”
Red Flag: “I handle custody myself.” This can be a red flag for potential conflicts of interest and security risks.
How Can You Prepare for Future Challenges?
These questions help you understand how the advisor will manage potential challenges and the implications of your investment decisions.
How do you adapt to significant market fluctuations?
Understanding the advisor’s approach to handling market volatility ensures they have strategies in place to protect and grow your investments during turbulent times.
Acceptable Answer: “I use a diversified investment approach and regularly review and adjust portfolios based on market conditions. We also have risk management strategies in place to mitigate potential losses during market downturns.”
Red Flag: “I just wait for the market to correct itself.” This indicates a lack of proactive strategies, which could lead to significant losses during market fluctuations.
What tax implications do I face if I invest with you?
Knowing the tax implications helps you understand the potential tax liabilities and benefits of your investment decisions.
Acceptable Answer: “I consider tax efficiency in all investment decisions and work closely with tax professionals to ensure your investments are structured in a tax-advantaged manner. We’ll discuss strategies like tax-loss harvesting and tax-efficient fund placement.”
Red Flag: “I don’t really focus on taxes.” This suggests a lack of attention to important tax considerations, which can significantly impact your investment returns.
How Will Communication and Relationships Work?
These questions help you understand the expected interaction frequency and the nature of the ongoing relationship.
How will our relationship work?
Understanding how the relationship will function ensures clarity on roles, responsibilities, and expectations.
Acceptable Answer: “Our relationship will be collaborative. We’ll start with an initial meeting to understand your goals and then have regular check-ins to review your progress and adjust your plan as needed.”
Red Flag: “We’ll figure it out as we go.” This shows a lack of a structured approach, which can lead to misunderstandings and unmet expectations.
Methodology
The questions in this article were carefully curated by me, Trevor Randall, based on my extensive experience as a Certified Financial Planner® (CFP®) and Retirement Income Certified Professional®. As the President and CEO of Randall Wealth Management Group, a family business established over 30 years ago, I have gained a wealth of knowledge and insights.
These questions are designed to help you find an advisor who is well-qualified, trustworthy, and capable of meeting your financial needs. The answers reflect best practices and standards I’ve found effective in my years of helping clients overcome financial challenges.
Note: The provided answers and examples may vary during your conversation. Focus on the main ideas of these answers while making a decision.
Conclusion
Choosing the right financial advisor is a crucial step in securing your financial future. By asking these essential questions, you can ensure that your advisor has the expertise, professionalism, and approach that aligns with your needs and goals. Remember, it’s important to find someone who not only understands your financial aspirations but also has the integrity and commitment to help you achieve them.
If you’re ready to take the next step in your financial planning journey, feel free to contact me, Trevor Randall, for a personalized consultation. With my extensive experience and dedication to my client’s success, I am here to guide you every step of the way. Reach out today to start building a secure and prosperous future.
