Flickr user: Marco Bellucci.
It can be hard figuring out what questions you should be asking your financial advisor. It can also be uncomfortable if the questions you'll be asking make you feel self-conscious, or put your advisor on the hot seat.
Don't worry, though. Our top Motley Fool contributors are here to help. Read on to get some tips that can make your next meeting with your financial advisor more profitable.
Todd Campbell: Iconic businessman Levi Strauss said, "an expert knows all the answers -- if you ask the right questions." The way I see it, advisors can offer up a treasure trove of important insights; but if you don't take the time to figure out what questions you want answers to, you're just not going to get the whole picture.
Obviously, investment advisors don't know where the stock market -- or any market -- is heading in the near term, but they've spent their entire career stockpiling information that could help you figure out the best way to save for college, retirement, or manage your way through the complexities of legacy planning.
Before sitting down with your financial advisor, spend a couple of weeks beforehand thinking about what really matters to you -- financially. Then, craft very specific questions that address those items.
Once you've done that, all you need to do is remember to bring those questions with you to your meeting and "ask" them. Remember, it's their job to answer them, or at least promise to get the answers. After all, you're paying your advisor to get the benefit of his or her experience; isn't it time that you did?
Selena Maranjian: One thing that your financial advisor may not tell you is whether he or she is operating under the fiduciary standard. Many advisors are required only to recommend suitable investments to you. While that may sound good, it's often not good enough. The fiduciary standard requires a professional to make recommendations that are in your best interest.
Think of it this way: There may be a dozen stocks or funds that are suitable for your portfolio -- or annuities suitable for your retirement needs -- but they won't all be equally attractive. Some may have high fees, and some might serve you better than others. The fiduciary advisor will steer you to what will serve you best.
Remember, too, that while many people might offer you financial advice, they won't be equally qualified. Look for credentials and designations. A Certified Financial Planner (CFP), for example, will have earned that credential through much study, will abide by the fiduciary standard, and will be licensed and regulated, too.
A Certified Public Accountant (CPA) who has earned the additional PFS (Personal Financial Specialist) designation is another promising candidate. Look into how much training and education any potential advisor has had, and what ethical rules they must abide by. You can read up on common credentials online, check up on some advisors' records with the Financial Industry Regulatory Authority, and seek fee-only advisors via the National Association of Personal Financial Advisors (NAPFA).
Dan Caplinger: Most financial advisors operate on business models that make it hard to figure out exactly how they get paid. It's unlike many other professionals who charge their clients directly -- it's rare for those seeking financial advice to get an outright bill for their services. Instead, any fees typically get taken directly out of your account, and the only place you'll see them is on your quarterly statement.
Moreover, many financial advisors get paid even less transparently than that. Certain types of investments, such as annuities, insurance products, and mutual funds that carry sales loads, provide for financial compensation to the advisor who sells the product.
Those commissions usually go directly from the selling financial institution to the advisor or the advisor's employer, and you won't necessarily see them on your statements, or even know about them at all. As Selena points out above, an advisor who has these outside sources of compensation can face the challenge of truly making recommendations in your best interest while, at the same time, dealing with an employer who wants to maximize profits.
In working with an advisor, be sure you know exactly how compensation works. That will help you put any investment recommendations into context, and give you a clearer picture of whether your advisor is truly helping you.
