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Can you trust your financial advisor?

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The financial services landscape is increasingly complex, and it can be tough to know whether you are getting your money’s worth from your financial advisor.

So, how do we cut through the noise and understand if we are working with the right advisor and institution to best serve our financial needs?

Below are eight critical questions to ask your financial advisor. Whether you are looking to hire an investment professional for the first time, or if you are looking at alternatives to your current advisor, these questions are a good way to get some of the information that you may need to make an informed decision about managing your assets.

How are you compensated?

Do you know exactly how your financial advisor and the investment firm are compensated? If the answer you get is vague or takes more than a minute to answer, consider walking away. You should also know what the all-in costs are.

Make sure you understand how much you are paying per transaction, per product or per service. Ask how much your financial advisor and their investment firm makes when mutual funds, annuities, and individual stocks or bonds are bought in your account. Be sure to ask if those costs to you are in addition to an annual or ongoing, account maintenance or advisory fee.

Also, know what other services you are entitled to for the fees you pay.

Tax optimization?


Retirement planning?

Estate planning?

You should be able to get all of this support from one advisor.

Are you a fiduciary?

This question is critical. A fiduciary has a legal obligation to act in your best interest. Brokers, for instance, do not typically act in a fiduciary capacity whereas registered investment advisors (RIAs) always do. RIAs can provide you with holistic investment advice, and they must legally do what is in your best interest. That’s the relationship you want.

Why did you suggest I invest in that fund?

You may want to ask your financial advisor if he or she is willing to invest in the same products that they recommend to you. For example, if your financial advisor has provided you with certain mutual funds to consider investing in, be sure to ask:

“Why are you showing me this particular mutual fund?”

“How did you select it?”

“Do you get compensated if I agree to invest?”

Do you have a sales quota?

Did you know that some financial advisors have monthly sales quotas? It means your advisor could have sales goals to reach and will be compensated if they reach those goals. The quota might come in the form of accumulating a certain level of assets with the firm or garnering a certain number of new clients. It could be a quota for selling insurance or other products.

Quotas can also be targeted at how much in fees the advisor generates for their firm. Think about how sales quotas may impact your financial advisors behavior as they reach the end of the month.

What percentage of your time do you spend on portfolio management?

Most people picture their advisor at a desk researching the next great investment for them. Actually, most advisors wear multiple hats. They have to divide their attention between investment research, servicing existing clients and prospecting for new clients. Find out how your advisor reviews your account and how often. You don’t want someone servicing your money who consistently has his or her attention elsewhere. This is your nest egg, and you want to make sure you trust your financial advisor to watch it carefully.

What is your investment strategy?

Does your advisor understand what your specific needs and goals are? Did you work together to build your long-term investment strategy? Ask your financial advisor what his or her investment strategy is and, most importantly, how it is customized for your needs. Investment strategies also change over time as risk tolerance and life changes. Make sure your investment strategy is dynamic and you have an ongoing dialogue with your financial advisor.

What are your credentials?

Certifications and credentials are often good indicators of expertise and understanding. Investment professionals can go by many terms (financial advisor, financial consultant, financial planner) so it’s helpful to understand what designations and credentials they have. Common credentials are Certified Financial Planner (CFP®) and Chartered Financial Analyst (CFA). Licensing exams are needed to give different types of advice. Make sure to ask if they’re certified or chartered or which exams they have passed. Ask them why they are qualified to help you with your investments.

What service can I expect from you?

Find out what kind of ongoing service you can expect. How often can you contact them and what can you expect in response times? Can you chat with them online or do you have to schedule meetings with them? Another important consideration is performance reporting. What materials do they provide so you can track how you are doing? Remember, this is your long-term financial well-being. If you’re not getting everything you need, ask for it.

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