10 Must-Ask Questions Before Choosing a Financial Advisor

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35% of Americans worked with a financial advisor in 2022, while 57% said they didn’t have one. A financial advisor has the experience and knowledge to provide customized solutions per your financial goals. Before you consult a financial advisor, here are 10 questions you need to ask them.

1. What are your qualifications?

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Please don’t confuse the professional designations of financial advisors with their certifications. Check for the exams they have cleared to qualify legally as a financial advisor. Find out if they hold the necessary licenses to sell financial products. It would be best if you looked for credentialed financial advisors such as:

  • Certified Financial Planner (CFP)
  • Certified Financial Analyst (CFA)
  • Certified Public Accountant (CPA)
  • Chartered Financial Consultant (ChFC)
  • Registered Investment Advisor (RIA)

You can vet their professional qualifications and disciplinary records on the Investment Advisor Public Disclosure website.

2. What kind of clients do you work with?

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This question will give you an idea of whether the financial advisor has experience working with clients with similar financial goals or specific situations to yours.

For example, some financial advisors work with high-net-worth clients. Some deal with clients in specific professions (sports, corporate employees). Some have more experience in working with people with a particular size of investment portfolio.

3. Are you a fiduciary?

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A fiduciary has a legal and ethical obligation to offer investment advice in the client’s best interests. A financial advisor who claims to be a fiduciary but refuses to sign a fiduciary oath is a red flag.

You can browse the fiduciary responsibilities enlisted by the U.S. Department of Labor to protect investors’ assets.

4. What services do you offer?

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A financial advisor can offer a single specialized service (business planning, charitable giving) or a range of services (wealth management, retirement planning, tax planning). Asking them for a list of their services will help you understand whether the advisory can fulfill your present and future financial needs.

5. What is your investment philosophy?

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The financial advisor’s investment philosophy should align with yours. For example, you believe in value investing, while the advisor has a better track record in growth investing.

The investment philosophy should also match the asset allocation strategy. You prefer a tactical asset allocation, while the advisor uses dynamic asset allocation.

6. What is your fee structure?

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Financial advisors follow different fee structures:

  • A fee-only financial advisor charges a flat or hourly fee or a percentage of Assets Under Management (AUM). Ideally, it would help if you went for this option, as advisors don’t earn any commission on investment transactions or financial products.

fee-based financial advisor charges a mix of fixed base pay and commission.

commission-based financial advisor charges a commission on the financial products they sell. A significant drawback of this fee structure is that the advisor may sell something other than the product that best fits you, but rather the one that fetches them more commission.

7. Which custodian do you use?

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Bernie Madoff, the former NASDAQ chairman and founder of Bernard L. Madoff Investments Securities LLC, tricked investors out of $65 billion through the biggest Ponzi scheme scandal ever. He acted as his own custodian and investment advisor for his clients. Consequently, he manipulated the investment statements he sent to the clients.

The lesson for investors is to ensure that their financial advisors work with a reputed and third-party custodian to hold and safeguard their investment. A few trustworthy custodians are Charles Schwab, Fidelity, Acorns, and Vanguard.

 8. What investment benchmarks do you use?

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Benchmarks or indexes measure the performance of your investment portfolio. S&P 500, Dow Jones, and NASDAQ Composite are equity indexes. Bloomberg Aggregate Bond Index is a fixed-income index.

Knowing your financial advisor’s benchmarks will help you understand the diversification and rebalancing of your portfolio.

 9. Do you provide technology-assisted services?

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A human advisor offers highly personalized services and charges much money owing to their credentials and experience. A robo-advisor is an automated platform that provides algorithm-driven financial services at comparatively cheaper prices while ensuring transparency.

You should look for a financial advisor who combines human interaction and digital services to optimize your portfolio.

 10. How will you communicate with me?

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Ask the financial advisor whether they would meet you in person, on a phone call, or via video conferencing for scheduled appointments. Find out if they are accessible via emails or text messages.