Lack of information is one of the barriers to financial freedom. Regardless of your investment experience, you need someone looking out for you when you make a financial move. However, don’t hire everyone who claims to be a financial expert. Whether you met them through a friend or relative, you need to vet your financial manager before bringing them on board.
That way, you save time and money and establish trust from the beginning. Remember, you can prepare questions for a financial advisor at any stage of your engagement, whether it’s the first meeting or subsequent interactions.
What Does a Financial Advisor Do, and Why Work With Them?
An advisor is an investment professional with the necessary education, licenses, and experience to organize your finances. Suppose you’re taking your child to college in a few years. An advisor will actualize this goal by calculating how much you should save per month and recommend the right insurance policy and financial assets.
A financial advisor can also help with setting goals. If you don’t know what to do with your money, the consultant could suggest tax-efficient opportunities that will generate returns without overwhelming you.
Advisors also eliminate self-bias. Investing with emotions blinds you to the risk of your decisions. As such, you need a level-headed third party to stop you from selling your holdings too quickly or taking on more investments than you can handle. Similarly, advisors take care of complicated financial processes such as research, planning, and calculations.
Questions for a Financial Advisor
You can ask general investment queries or seek specific details about your financial situation. Here are some questions for a financial advisor.
1. How Do You Get Paid — Fee or Commission?
Even if the advisor’s rates are on their website, confirm whether they have hidden charges. Financial consultants have different payment structures. They include:
- Commissions: Consultants may get paid for every successful asset recommendation. These products include mutual funds, annuities, and insurance.
- Hourly rate: It’s the compensation for every hour of advisory services.
- Fixed rates: Sometimes called flat fee, this is a predetermined rate for particular advisory services. Ordinarily, this fee stays constant regardless of the work duration.
- Assets under management (AUM): Advisors receive a portion of your investments as annual fees for managing the assets.
2. What Services Do You Offer?
Financial managers have different specializations. Decide whether you only want investment advice or additional services such as portfolio management and financial planning. Other services include:
- Tax mitigation
- Cash flow strategies
- Educational expense planning
- Retirement advice
- Business succession
Consider your present and future investment needs. The advisor should accommodate your changing investment needs as your finances evolve. Note that most consultants specialize in one area. As such, be wary of anyone who claims to do everything.
3. How Will We Engage?
Ask about your future relationship with the advisor. That includes how often you’ll communicate and whether your meetings will be in-person or over the phone. Additionally, ask if you can contact the advisor outside planned appointments and their willingness to change your investment goals when need be.
You should also know whether the financial consultant has a team or you’ll work with them directly. By asking these questions, you gauge the advisor’s reliability and whether their systems are ideal for your financial needs.
4. What Are Your Certifications?
Credentials prove a consultant’s experience and level of education. They also show their area of specialization and adherence to ethical standards. Common certifications include:
- Certified Public Accountant (CPA): The AICPA issues this license to accountants, financial analysts, and tax preparers. You can get a CPA to fix your tax problems and organize your investments.
- Certified Financial Planner (CFP): These professionals evaluate your portfolio and build customized financial plans.
- Chartered Financial Consultant (ChFC): Though ChFCs and CFPs share an educational background, chartered financial consultants offer more specialization. For example, you can hire a ChFC for divorce financial planning
5. Do I Get Fiduciary Benefits?
The fiduciary standard requires financial advisors to prioritize clients’ interests over their own. By doing so, the standard eliminates conflicts of interest to promote a sense of duty to the client.
However, not every advisor adheres to fiduciary duty. Non-fiduciary consultants follow the suitability standard. This means they recommend suitable solutions without considering your best interests.
Financial advisors have different investment styles. Overall, pick someone with a clear explanation of their money management strategy. Advisors should also evaluate your entire portfolio to know the right investment approach. Even if they don’t manage some of your assets, the advisor can make sense of your investment goals and risk tolerance by observing the portfolio as a whole.
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