Questions to Ask a Financial Advisor: The 5 most important ones!

Finding a financial advisor can be a tricky process. First, you have to determine if you need a financial advisor at all. If you have determined that you do, in fact, need a financial advisor, then here are the top 5 questions to ask a financial advisor when you are interviewing them. Don’t be afraid to really get into the weeds with a potential financial advisor. After all, they will work for you. Do not let them sell you or coerce you into giving them your money. It’s your money and you work hard for it. So make sure that you like and trust any professional that works for you.

(1) Questions to Ask a Financial Advisor: Do you have a securities license?

The financial industry is littered with misinformation and deceit. (And that is coming from someone who has worked in the financial industry for several years.)

One of the biggest problems in the financial industry (in my opinion) is that virtually anyone can claim that they are a financial advisor. There is no legal definition that someone has to meet to say that they are a financial advisor. Your Uncle Bob who doesn’t have two nickels to rub together and tells you to invest all of your money in commemorative NASCAR plates can call himself a financial advisor. Likewise, someone who works at the highest levels of finance in the largest of investment banks and manages hundreds of millions of dollars is also a financial advisor.

So this is what to look for:

Ask the potential financial advisor if they have a securities license. Their securities license can come in a few forms. They should have a Series 7 designation, Series 65, Series 66, or another financial designation that is a “Series” followed by a number. They should DEFINITELY have a series 7 at a minimum. Also, if they have the designation CFP, that is a really good thing. By having these designations, they can offer you things like:

• Mutual funds
• Stocks
• Bonds
• Variable annuities
• Etc.

If you are talking to a potential financial advisor and they say that they do not have a securities license then they are NOT a financial advisor, they are an insurance agent. They can only offer you:

• Life insurance products
• Health insurance products
• Fixed annuities

Do not let an insurance professional be your financial advisor! There is nothing wrong with insurance agents at all. They simply don’t have investment tools in their toolbelt. They can only sell you insurance products, while someone with a securities license can sell you insurance products AND investments.

(2) Questions to Ask a Financial Advisor: Are you a fiduciary?

This one is really important. Any financial advisor that you have should be a fiduciary. 

A fiduciary is someone who is legally and ethically required to do the best thing for you regardless of what is best for them. This means that they put your interests ahead of their own.

So for example,  a potential financial advisor might be able to sell you Product A and they get a huge commission for selling it even though it is not a good fit for your situation. On the other hand, they could also sell you Product B but they get a small commission for it because it is a perfect fit for your situation, they are REQUIRED to sell you Product B because it is best for you.

Make sure that whoever you work with is a fiduciary and they will make sure that they are doing the best thing for you, regardless of how they get paid.

This leads me to my next question to ask a financial advisor.

(3) Questions to Ask a Financial Advisor: How do you get paid?

Generally speaking, there are three ways that financial advisors get paid. Also generally speaking, if they are a fiduciary, you don’t have to worry too much about which way they are paid. This article won’t get into the nitty-gritty of which type of payment structure is better or worse. Let’s just briefly go over the different ways that financial advisors get paid.

1. Fee only: A fee only financial advisor will simply charge a flat percentage of all of the money that you have invested with them. For example: if you have $1 million and they charge a 1% fee, you will pay $10,000 per year ($833 per month).This is also the most common form of payment for a financial advisor.
2. Commission based: A commission based financial advisor will get paid a commission for each financial product that they sell you. But remember, if they are a fiduciary, this shouldn’t be a problem. Do your best to reduce the amount of commissions that you pay, but don’t be afraid to pay some amount of commissions to a financial advisor if this is how they are paid.
3. Fee based: This is sort of a combination of a fee only and commission based financial advisor. A fee based financial advisor will generally charge you a set percentage of your account (like the fee based) but also be able to charge commissions like a commission based financial advisor. Be careful with a fee based financial advisor. They are not bad at all. But a fee based financial advisor can sometimes act as a fiduciary, and sometimes not. 

(4) Questions to Ask a Financial Advisor: How will my money be invested?

This one is also really important. But at the end of the day, you are looking for two answers to this question.

1. How your money is invested should depend on your specific situation.
   1. A good financial advisor should NEVER put all of their clients into the same product (or even type of product). A financial advisor should mold each financial plan to fit the goals of the individual. That means that your financial plan will not look the same as mine.
2. You should understand how your money is being invested.
   1. I have seen it too many times. A financial advisor tells the client to sit back and “trust me”. Yes, there is an element of trust between the two parties. But it should not be one sided. A financial advisor should TEACH you about any product that you are invested in so that YOU CAN UNDERSTAND IT. Don’t let a financial advisor use 10-dollar words without explanation or let them talk down to you. Remember, they work for you!

Also, remember that when you invest money there is always a chance for you to lose some of it. Just because your account loses value, doesn’t mean that the advisor did a bad job. If the entire economy goes down, your investments probably will too. Financial advisors don’t have crystal balls. They won’t be able to predict the future. 

(5) Questions to Ask a Financial Advisor: How will our relationship work?

The financial advisor should map out some type of plan with you. You should look for these things:

• A regular interval in which they will call, email, text, etc. you about the status of your account. 
• A phone call within a few days of extreme market volatility to let you know the status of your account(s).
• They should be up-front about any and all fees that you will have to pay.
• They should send an email when they go on vacation or are out of the office for a prolonged period of time so as to let you know that they will not be in the office.
• The financial advisor should be clear of what they expect from you.

Final Thoughts

Picking a financial advisor can be a daunting task. It can also be frustrating. You will have to sift through several pieces of crap to find a piece of gold. The financial industry is littered with shady people. Don’t let them fool you. If you use these questions to ask a financial advisor when you are looking for one you should be in good shape.

I’m here for you all. 

Please let me know in the comments, any other article that you would have me write.

You can do this!

Until next time!