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Questions to Ask a Financial Advisor

For many people, the journey to financial stability begins when they meet with a financial advisor. No matter what your assets look like, how many people are in your household or what you hope to accomplish with your finances, finding the right advisor is a crucial first step in achieving those goals.

Key Takeaways

  • Asking the right questions during a meeting with a financial advisor can reveal their ability to perform their job and achieve your specific financial goals.
  • Not all advisors are right for all clients, so it’s important to find someone who is qualified and experienced in situations similar to your own.
  • Whatever you hope to achieve through investing, you should focus on your long-term goals and let those guide your decision-making.

Determine Financial Goals

Before you can choose the right financial advisor, you need to understand what you hope to achieve. If you’re planning for retirement, for instance, you need to understand what that looks like for you—how much money do you need each month? How often will you be making large expenses? Will you continue to support other members of a household and, if so, to what extent?

All of these questions should guide your goal-setting process, and you should have a relatively clear picture of what you want before you start seeking assistance from a financial professional.

Questions for a Financial Advisor

Once you understand your financial goals, it’s time to start hunting for the right advisor. This process can be made much simpler by preparing some questions ahead of time, which will show you how qualified the advisor is and how experienced they are with individuals in similar circumstances to your own.

Are You a Fiduciary?

A fiduciary is a financial professional who is legally required to act in the best economic interests of their clients. Certain types of financial advisors, like Certified Financial Planners, must also be fiduciaries, but not all financial professionals are. Knowing your advisor is legally bound to help you make the best financial decisions is a relief for many investors.

How are You Paid?

Different advisors use different compensation plans. Typically, financial advisors receive either a commission, a set fee, or a combination of the two.

Advisors who operate on a commission basis will receive an agreed-upon percentage of the proceeds from the sale of financial products they manage for their clients. At the same time, fee-only compensation is typically either a set hourly rate or a percentage of the total value of assets managed.

For larger financial planning firms, advisors might also be paid a salary based on the company’s total funds generated.

What is Your Investment Philosophy?

No two people see the investing world exactly the same, and it’s important to find an advisor whose perspective on investing aligns with your long-term goals. 

An advisor’s investment philosophy considers factors like their tolerance for risk, preferred investing strategies, beliefs about the market, and many others. These ideas, coupled with the advisor’s professional experience, will dictate how your assets are used to accomplish your financial goals. 

What Services Do You Provide?

Many financial advisors offer a wide range of services, but often they will specialize in certain aspects of investing and financial planning. Asking about available services and specialties when seeking an advisor will ensure you find the right person for your needs.

If, for instance, you plan to send several kids to college in the future, it’s good to know your prospective advisor has experience navigating the costs and challenges of doing so economically. If you’re planning to retire soon, you want to find an advisor who knows every little tip and trick to maximize your retirement savings. Whatever your goals might be, there’s a specialist out there to help you achieve them.

How Will We Work Together?

Some people want to be involved in every little detail of their financial planning, while others prefer not to see how the sausage is made. Finding the right advisor means finding a professional who communicates in the style and frequency that suits your needs, whether that’s consistent and specific updates or more spread-out, big-picture check-ins. 

No matter what you want your working relationship with your advisor to look like, it’s critical to find someone who has clear, effective communication skills and who knows how to break down the necessary information for you to understand in a simple, efficient manner.

How Do You Track Investment Performance?

Whatever your advisor’s investment philosophy and strategy, you’ll want to receive periodic updates about your investments. Understanding how an advisor interprets the effectiveness of their investment decisions up front will allow you to see how things are going over time and can provide insight into their effectiveness as a planner. 

What Professional Experience Do You Have?

No matter how an advisor is trained or what their investing strategies look like, there’s little substitute for working experience. A seasoned veteran of the financial industry will have a better idea of how to navigate complex financial situations and, perhaps more importantly, will know what to do when things go unexpectedly wrong. In the event of an unavoidable financial issue, it’s always good to have someone on your side who’s been there before.

What Types of Clients Do You Typically Work With?

Managing finances and investments requires context. What works for one person or family might not be right for another, and it’s generally a good idea to find an advisor who has worked with clients in similar situations.

An advisor who works exclusively with ultra-high-net-worth individuals, for instance, might not be as experienced in navigating lower-stakes investing strategies or vice versa. Financial professionals who work primarily with single-income, child-free homes might not know as much about financial planning for a large family. Finding someone who’s experienced working with people like you can be a huge help when navigating tricky financial scenarios.

What to expect at a financial planning meeting

A financial planning meeting is your opportunity to get to know your financial advisor and for them to learn more about you and your goals. A typical meeting will include an overview of your long-term plans and the current state of your finances to help your advisor better understand what’s possible and what you hope to accomplish.

You will also have the opportunity to ask these important questions during the meeting. This will allow you to learn more about the advisor’s experience and mindset and determine if they are a good fit for your financial needs before committing to a working relationship with them or their firm.

Bottom Line

Starting to work with a new financial advisor is an important step toward accomplishing your goals, and finding the right person to work with is crucial to succeeding in those goals. By asking questions and arriving well-prepared to your initial meeting, you can greatly increase your chances of finding someone who will serve as a good partner for your financial future.

Horizons Wealth Management offers various services, such as wealth management, managed portfolios, and financial planning. Schedule a call today to start planning your financial future.

Financial Advisor FAQs

Is it worth it to pay 1 percent to a financial advisor?

This depends on your individual situation, but generally, a 1 percent fee is fairly typical for these types of services. For less-complex financial advising, this could be higher than necessary, but for extremely complicated tax situations, it could be relatively affordable. If possible, try to compare rates for your situation across several prospective advisors to get a sense of what’s normal for you.

What rate of return should I expect from my financial advisor?

This is also extremely dependent on your unique situation, and will likely be influenced by you and your advisor’s tolerance for risk. Safer investments will yield lower returns with a higher rate of certainty, while riskier moves could produce a higher rate of return with less certainty.

How do you know a financial advisor is good at their job? 

The simplest way to know if an advisor is skilled at their job is to check for customer testimonials and ask clear, straightforward questions during your initial meeting. An advisor with a great deal of experience and positive reviews is likely to be in touch with what their clients want and how to accomplish those goals.

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Fee-Only Financial Planner: What’s the Difference?

To learn about the importance of working with a Fee-Only Financial Planner click here.

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Why Fee-Only Matters

Why “Fee-Only” Matters
Many of our prospective clients ask us about the Fee-Only Financial Planning concept and why it
matters. So, here’s just one example.

Recently we had lunch with a salesman to discuss an alternative investment involving real estate. It
sounded very intriguing and might be a worthy investment for some clients in the future. Unlike a
mutual fund or ETF, the internal expenses associated with this type of investment usually aren’t clearly
spelled out. Much “due diligence” is required, so we probed him about the investment’s fee
structure. He informed us that our commission on the investment would be 7%. It was at that
moment that “fee-only” really mattered to us and our clients.

See, true “fee-only” planners and investment advisors can only be compensated by their clients. This
excludes commissions paid by brokers, investment companies, insurance companies, or any other
outside agents soliciting their business. Given the desirable financial incentives of commissions, “fee-only” planners are not common.

As fee-only planners, we average less than 1% per year in
compensation for managing client investments. So for us to earn 7%, it would take about 7 years of
management to equal what we could make up front by purchasing this investment with our clients’
funds. In dollar terms, if we worked for a few weeks to convince enough clients to buy one million
dollars (a small percent of our assets under management) of the product, we would make $70,000.

Instead, we will work for our clients for years to earn this amount on the same size assets.
Sadly, most investors give little thought to the hidden costs they pay when an advisor recommends
stocks, annuities, or insurance policies. Investors just don’t realize they are padding the advisor’s
wallet with plump, front-loaded commissions. Most investment advisors work for a brokerage firm, an
insurance company, a bank, or independently with their primary source of income being commissions
(Merrill Lynch, Edward Jones, Goldman Sachs, Ameriprise, etc.). Because these advisors’ and their
firms generate their incomes by means of commissions, their goal is to maximize and churn trading,
which is the unethical practice of excessively buying and selling investments in a client’s account.

Due to the obvious conflicts of interest in providing financial and investment advice to people you are
selling products; many have migrated to a “fee-based” model. This term often confuses the public
into thinking it’s free of commissions. In fact, this means they charge fees like a “fee-only” planner,
but can also make commissions! For instance, when an advisor sells an “A” share mutual fund to a
client or purchases it for their account, a commission is generated. This “front load,” often 5%, is
rarely mentioned to the client. In the opening example, if we were “fee-based” we could have
accepted the commissions and charged our regular fees. Not exactly a great deal for our clients,
right? Nope!

While “fee-only” doesn’t guarantee honest advice, excellent service, or positive investment returns, it
does show a dependency upon these factors for the business to be successful. Over the long-tem, if
our clients don’t see the value of our service and trust us, they will leave, and our business will fail.
Commission driven firms can prosper even if many of their clients aren’t financially successful. They
just need new clients to replace the old ones. Since the advisors’ income is primarily front-loaded,
finding new clients eclipses the need to take care of current clients (unless they can keep the current
clients switching products to generate new commissions).

Back to our original story…does this mean our clients can’t invest in a good opportunity if there are
commissions involved? Of course not. In this example, we can still purchase the investment and
simply wave our right to the commission. The result would be our clients getting 7% more of the
investment for their hard-earned money. Of course this does raise the question of how much of a cut
the salesman would get. And this is why “Fee-Only” matters.

As Fee-Only advisors we are proud to be members of the National Association of Personal Financial
Advisors (NAPFA). NAPFA members are held to the Fiduciary Standard and must meet arduous
requirements to be part of the organization.

By:  Glen Martin @ Horizons Wealth Management

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3 Reasons to Hire a Fee-Only Financial Planner

Do you have money to invest, but you’re not sure where to put it?  The stakes are so high in investing that you should consider fee-only planners. They’ll give you a fixed price up front for their services, regardless of the product they recommend. You won’t have to worry about conflict of interest.

Click here to learn why  you need a fee-only financial planner.

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What the Supreme Court’s fixes for retirement savings may do to your 401(k)

SUPREME COURT RULES WORKERS CAN SUE OVER HIGH 401(K) FEES

On Monday, The Supreme Court of the United States ruled that workers can sue their employers over high fees in their 401(k) plan offerings. Workers have complained for years about being forced to choose high fee investment options in their 401(k) plans because of a lack of other options. In a 9-0 decision, the justices decided that employers could be sued if their retirement plans offer employees mutual funds with unnecessarily high fees.

Learn More Here.

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9 in 10 Americans Underestimate Their Hidden 401(k) Fees. When was the last time you checked the fees on your 401(k)?

Who’s looking out for your 401(k)?  Do you know who is legally responsible for plan losses and excessive fees?  Do you understand the fees being charged to your account?  When was the last time you checked the fees on your 401(k)?

All too often, workers with 401(k) accounts are in the dark. They view their retirement plan as a benefit and are unaware they’re paying for the privilege of investing for retirement. Many times, the 401(k) plans get neglected or pushed to the bottom of the list because the owner and Board of Directors are too busy with other tasks.

Many investors don’t realize that more than a half a dozen fees may be charged against their 401(k) account for recordkeeping, administration, investment advisory, brokerage and management services. These are often shaved off the top of the account’s investment returns, and never before seen by the 401(k) participants.

The Federal Government has been trying to enforce new regulations that require 401(k) plan providers to spell out the hidden fees workers pay.  The push for greater disclosure has been in the works for several years, and it has been a struggle.

Unveiling  investment expenses is particularly important for 401(k) participants in smaller companies. That’s primarily because many companies, especially small businesses, do not want to pay the thousands of dollars of operating costs; therefore, they set up retirement plans in which costs are paid by workers out of their investment returns.

All of this discussion is critical because 401(k) participants who pay just 1 percent more in fees see a significant impact on their retirement balance over their working careers.

Revealing these costs should cause workers to push their employers for a less expensive plan. That’s the takeaway for employees in all this. They should look over their reports and if they feel they’re not getting enough information, push for more. If they find their fees seem higher than average, they should talk to their plan administrator about lower fee options.

At Horizons Wealth Management, we feel certain that we can provide a better retirement plan for much lower costs.  We would be grateful for the opportunity to run a free cost comparison and analysis for your company to illustrate how much could be saved in your retirement plan fees.

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Stock Brokers vs. Fiduciaries- Do You Know The Difference?

Tony Robbins recommends this short video clip in his new book, Money: Master The Game. This is a great explanation of the difference between brokers and financial fiduciaries.  Most brokers call themselves “financial advisors” or “financial planners,” but less than 10% of them are actually fiduciaries.  Robbins advocates for using an Independent Fee-Only Fiduciary in order to protect investors from deceptive sales practices.

This clip here gives a nice break down of why.

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Would people possibly mistake someone completely unqualified to handle their finances?

The fact is, anyone can claim to be a financial advisor. There is a big difference between stock brokers, insurance agents, salesman, and CERTIFIED FINANCIAL PLANNERS. Do you know the difference between fee-only and fee-based?  Does your financial adviser sell products to make commissions?  Fee-Only advisers do not sell any financial products! To bring awareness to this confusion,  the CFP Board recently conducted an informal experiment. Would people possibly mistake someone completely unqualified to handle their finances for a qualified financial advisor? The results are alarming.

The CFP Board created a fake financial firm on the 48th floor of a prominent office building. The firm’s key feature? A conference room constructed with fake walls, two-way mirrors and six hidden cameras. Once everything was properly set up, they invited various people to receive a brief presentation from a man claiming to be a financial advisor. In actuality, he was a professional DJ equipped with little more than a few financial-sounding phrases and a personable demeanor.  The lesson here, not all financial planners are what they appear.

If they’re not a CFP® pro, you just don’t know.  CFP® CERTIFICATION is recognized as the highest standard in personal financial planning.  Not all financial planners are FIDUCIARIES.  Work with professionals who are required to put your needs before their own.  We adhere to the highest standard a Fiduciary can and do not combine product sales with advice-giving.  If they’re not a CFP® pro, you just don’t know.  Find a CERTIFIED FINANCIAL PLANNER™ who’s properly vetted.   CFP®:  Work with the highest standard.

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