What questions should I ask a financial advisor?

When Thomas Carlyle called economics “the dismal science,” he could have just as easily been describing financial planning and investing.

Many people find the subject intimidating and off-putting and instead of managing it themselves, seek to find an expert to handle things. Unfortunately, stories of wealthy and intelligent people who have lost all their money because they selected the wrong advisor are all too common. Google the names of Kevin Bacon, Nicolas Cage, or Billy Joel and you’ll see what I mean. And that’s just a start.

So the question becomes: What questions should I ask a financial advisor to figure out whether he or she is going to be a good guardian of my money?

Hiring a financial advisor should be approached just like hiring any other professional, whether a contractor, a landscaper, or a doctor. And when talking with an advisor, approach this potential relationship with this attitude: THEY will be working for and are responsible to YOU. You are the boss.

So, what questions should you ask a financial advisor?

If you were getting your kitchen remodeled, you’d certainly ask about costs, deadlines, references, and warranties. Ask these same things of your advisor. For example:

  • How much will you charge me for your services?
  • What can I expect to get in return for that money?
  • Is there any guarantee? (The answer is no, but that sets up the next question.)
  • What return does your average client see in a year?
  • What returns do you make for yourself?
  • Could you give me some client references?

Don’t be put off by complex terms, jargon, and acronyms. It’s your advisor’s job to make himself understood; it is not your responsibility to be up on industry buzzwords.

Ask for clarification. There are no stupid questions. If he can’t answer all your questions to your satisfaction, keep looking.

To arm yourself in any discussion, it’s good to know at least the basics, both to know the best questions to ask, and to have a detector in place if he’s trying to slide something past you.

We recommend reading the 13 Steps to Investing Foolishly as a great starting point. And who knows, you might figure out that you could be your own best financial advisor.

— Answer provided by Motley Fool member Jeb Sturmer

More questions to consider

Looking for more questions to ask your financial advisor? Here are a few from Motley Fool member Paul Thomas.

  1. How much will you charge? At many advisors, once your account gets big enough (generally a few hundred thousand), you can get a free financial checkup.
  2. What should I bring to the appointment? You should at least bring statements for all financial accounts everywhere, a Social Security statement, and a Zillow estimate on your house. He may want to see a Quicken household cash flow statement if you have one. Financial advisors don’t assume you have this stuff, but if you bring it, they will work with it!
  3. What are upcoming life events when I should get back in touch with you? For example, she or he may refer you to a Social Security specialist on the team to work out the best way to start those payments. Or if you have a variable annuity, the financial advisor will put you in touch with a specialist to convert to another type of annuity.
  4. Would you help me with this issue in my account? Financial advisors connected with brokerages will monitor anything complicated happening with your account.
  5. Can I retire or what should I be doing to reach the retirement threshold? This is the basic question that your advisor will be covering with you.

Finally, before you make your first call, inform yourself about the fees you might expect to be charged, whether you’re meeting with a fee-based advisor or someone who works on commission. Here’s a must-read article about how to choose a financial advisor.

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3 Comments

  1. Mr. Naive

    I’m a trustee on a large brokerage account. The account is vested in low risk stocks. For some reason, which I don’t understand because I have limited securities and investment knowledge, the account has gone from 3.4 million in August 2014 to 2.55 million today. The monthly losses have been consistently downward since 8/14. This is a loss of nearly a third of the accounts value in 17 months. This loss seams extreme. There isn’t a recession and a market correction is usually under two months as I understand.

    What would be the reasonable thing to do at this time so I can responsibly execute my due diligence as a fiduciary managing the Trust that contains this particular brokerage account ?

  2. James Bieber

    I am looking to find out about investing in the YUAN and its tremendous rise in value after the IMF makes it a trade able currency next fall. What information can you help me with and who can you tell me to get in contact with to learn about the best and safest way to proceed.
    Thank you.
    Regards,
    Jim bieber

  3. David Gardner

    Should add in the distinction between “fee-based” financial advisors and “fee-only” financial advisors. Very important!