16 important questions to ask your financial advisor

To get the most value from your financial advisor, you must ask the right questions.

Ask strategic questions to potential advisors And you can quickly get rid of professionals who do not fit your needs. During your financial planning and retirement sessions, you can rely on pointed inquiries to reveal assumptions that need to be revised. And in your annual reviews, targeted questions can reveal what really works for your financial plan.

Here are 16 key questions to ask a financial advisor — at the first interview, during retirement planning sessions, and at year-end financial reviews.

Your first interview with your financial advisor

1. How will our advisor-client relationship work?

Your goal here is to understand how often you will talk to your guide in person, online, or on the phone. There are two points to check in this conversation: how much time your mentor needs from you and how much time you need from your mentor.

Your mentor will ask you to set aside time for planning discussions and making financial decisions. If you can’t fit these conversations into your schedule, your financial momentum will suffer.

On the other hand, you may need more communication with your mentor than the average client. Let’s say you tend to panic when the stock market goes down. In that case, you will likely benefit from a reassuring phone call every now and then. The The right financial advisor for you It should be open for those unscheduled conversations.

2. How are you paid?

Consultants earn through set fees, commissions, or both. You pay the said fees and other partners pay commissions.

Committees are an important topic of discussion because they create a conflict of interest. Your advisor should recommend financial products that benefit you, regardless of the commission opportunity. But unethical advisors may put themselves first by paying products primarily to mobilize their income.

If a consultant earns commissions, ask them how they handle conflicts of interest. Generally, Want a consultant? Who is transparent about these conflicts.

More from ForbesDo I need a financial advisor or should I go alone?

3. Are you my credit?

There are two standards of conduct that help financial advisors and their clients manage conflicts of interest: fiduciary duty and best interest.

Credit advisors put the needs of their clients above their own. In practice, trustees avoid conflicts of interest, usually by not selling commission-based products. They are morally obligated to make recommendations that best match the client’s financial situation and goals – even if this results in lower income for the advisor.

The SEC’s best interest standard is a bit more lenient than the fiduciary standard. Under the best interest protocol, your advisor should only suggest financial products that are the most appropriate options. Conflicts of interest are allowed, but must be disclosed by the advisor. In practice, this means that the advisor should tell you about any commissions associated with his recommendations.

Consider it a red flag if the advisor does not comply with fiduciary standards or best interest standards.

4. What licenses and certifications do you have?

Personal financial advisors can have a range of licenses and certifications. These credentials tell you what kind of education and training a counselor has. Credentials also help you with background checks; You can contact the accrediting organization to verify that the advisor is still accredited.

For a detailed review of advisor licenses and certifications, see What can a financial advisor do for me?

5. What is your investment philosophy?

Investment strategies can vary widely, but most fall into one of two camps: buy and hold or market timing.

Buy-and-hold investors choose stocks, mutual funds, and other assets that have long-term potential. These investors maintain a relatively stable portfolio and gain through long-term appreciation.

Market timers are looking for short-term gains. They buy stocks and other assets that are poised to grow quickly. If the expected gains materialize, they often sell those positions to take a profit. As you might imagine, market timers trade a lot and their success largely depends on the timely execution of transactions.

Buy and hold strategies are generally less risky (but less exciting) than market timing strategies. If you are against risk, you will communicate better with a counselor who takes a long-term approach. In comparison, market timing strategies create more volatility.

6. How do you decide to allocate assets?

Asset allocation is the formation of your portfolio across different asset types, such as stocks, bonds, real estate, gold and cash. Using this configuration to tailor portfolio risk is an important concept in investment management.

Find out how your advisor customizes your asset allocation to suit your situation. The usual factors here are your age and risk tolerance. If you are younger and open to taking some risks, for example, a more aggressive allotment in favor of stocks is appropriate. Older, more conservative investors generally prefer to set aside larger bonds for greater stability.

7. Will I work with anyone else on your team?

You should know the names of the assistants and other team members who may contact you and under what circumstances. If someone else is going to ask technical and financial questions, make sure you are comfortable having these conversations with that person.

8. Do you specialize in certain types of clients?

You don’t want to be far from your counselor’s practice. You’ll get better advice by being the type of client your advisor wants.

This question should lead to your net worth, risk tolerance and overall financial goals. Be prepared to discuss these topics, so that together you and the counselor can decide if you’ll make a good team.

9. What will my total costs be?

The fee is deducted from your net worth over time. You can’t avoid it completely, but you should do your best to manage it.

Make sure you know all the fees coming your way. Ask your advisor to talk with you about the fee structure, including management fees, trading fees, account fees, and administrative fees.

10. How will your investment strategy affect my tax bill?

If your advisor manages your money in a taxable account, you will pay taxes annually on the gains realized, dividends, and interest. Your earnings will cover those taxes – but withdrawing money from your investment account reduces your potential future wealth.

Most advisors will keep this in mind. Make sure that you. Ideally, the advisor follows a tax-efficient investment strategy and estimates the tax implications before making recommendations.

More from ForbesHow to find the right financial advisor for you

Questions to ask your advisor about retirement

Retirement planning can be incredibly complicated. If you hire a consultant to help you in this area, use the questions below to test the advisor’s assumptions and plans.

11. When can I retire?

To estimate when you can retire, your advisor must anticipate the growth of your savings, estimate the income you will need in retirement, and assume an annual withdrawal rate to support that income. Dig into these assumptions and make sure you agree with them.

12. What will my retirement income be?

You may have a specific vision for your retirement. You’ll want to check that your vision aligns with your advisor’s expectations. It’s a problem if you’re planning to travel the world as a retiree, but your advisor makes small living expenses.

If necessary, ask your advisor to reframe your plan with different income assumptions — so you can see how this affects your retirement schedule and the longevity of your savings.

13. How do I plan for taxes in retirement?

Distributions from traditional IRAs and 401(k)s are taxable. Up to 85% of Social Security income can also be taxed. If you don’t have a budget for those expenses, your savings won’t last as long as you want them to.

Your advisor should proactively recommend strategies for managing income tax in retirement. These strategies may include Roth retirement contributions, Roth transfers, or long-life qualified annuity contracts.

Questions to ask your advisor during the annual review

Once you have selected a counselor, you will meet annually to assess your progress toward achieving your financial goals. Often the counselor leads this conversation, but you should confirm your agenda as well. Use the following questions to deepen your understanding of your advisor’s year-end analysis.

14. How has my net worth changed? What prompted the change?

Your counselor should expect this line of questions and be prepared to answer them in detail.

Ask your advisor to talk about your net worth change in the item details. You’ll want to know what assets were valued during the year and which ones lost value.

Look for opportunities to search for more information, too. If a certain type of asset loses value during the year, for example, find out why. If you still own this asset, ask about its role in your plan moving forward.

15. How are my investments performing in relation to the market?

Market performance adds context to changing your net worth. If the stock market has fallen by 30% in the past 12 months, your net worth is likely to be low as well. Along the same lines, if the market is strong, you should see gains in your own account.

Your investment strategy will determine how much difference you will notice between market performance and your account performance. An aggressive strategy can outperform the market when stock prices are rising, but perform poorly when stock prices are down. Conservative strategy often does the opposite – underperform in strong markets and show less losses in falling markets.

However, significant differences between your results and market activity may be cause for concern. If you lost 20% in the last year while the market grew 10%, your advisor has some explanation to do.

16. How much progress have I made with my financial priorities?

Ask your advisor to measure and evaluate your progress toward your financial priorities. Are you on the right track? If not, then why? Are there changes you can make to speed up results?

Use this conversation to reassess your financial priorities. Make sure it is realistic within your schedule. If you are not, turn to your guide to recommend course correction.

Check the assumptions and keep the dialogue flowing

In your first interview with an advisor, you will verify your own assumptions about the advisor relationship, costs, planning process, and investment strategy.

In subsequent meetings, check out Adviser Assumptions – These are incorporated into your personal financial plans and affect your results. Improving the accuracy of those assumptions helps you build wealth momentum and reach your financial goals faster.

No matter what, keep the dialogue open with your mentor. Circumstances change and financial plans must evolve. Although the journey to financial independence rarely follows a straight line, a curious mindset can get you moving in the right direction.

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