Three Questions To Ask A Financial Advisor
Three Questions To Ask A Financial Advisor

This is by no means a list of ALL the questions to ask a financial advisor. However, this is a good starting point. Whether you’re currently working with an advisor or considering a new one, don’t be shy about these questions. The financial services industry has changed significantly over the last few years. It’s changing due to competitive market forces and new rules and regulations. Take this opportunity to check in with your advisor and make sure you’re are up to speed. If looking for a new advisor, you owe it to yourself to ask these questions.

Three Questions To Ask A Financial Advisor:

How are you compensated?

How a financial advisor is paid significantly affects the relationship. You should never shy away from this question. As a consumer, you have a right to that information. This should be a straight forward answer so if you are still unsure just exactly how they will be paid, you should think twice. You need to know whether you will be paying the advisor directly in the form of fees. This can be via an hourly fee where you receive an invoice or via a percentage of your investment assets.

Or, is the advisor receiving commissions for selling you various financial products? If the advisor says you won’t be paying anything because he or she receives commissions from financial institutions and not you, run the other way. This type of answer gives the investor the impression that there is no cost, which there most certainly is. This might be the most important of all the questions to ask a financial advisor.

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What conflicts of interest exist when you provide advice?

Conflicts of interest aren’t always as scary as they may sound. What is more important is whether the conflicts are disclosed and to what degree they may affect the advice you receive. Consider the following: Your advisor had been recommending a mutual fund to you over the years. That advisor received a higher level of compensation for doing so than if he or she recommended a better fund that paid less in compensation. Would you be disappointed?

What if your advisor was to receive a special prize or bonus for recommending a financial product? Wouldn’t you want to know that information before you made the decision to buy the product or recommendation? What if your advisor recommends an investment that he or she is a partner in and receives a direct financial benefit from your investment? You should know that information ahead of time.

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Where can I go to find independent information about your record?

Now this is a question you’ll know ahead of time because I will provide the answer here. However, the advisor should be forthcoming about the common search options available that are specific to the type of advisor he or she is. And remember, you’re not asking the advisor if he or she is crooked so it won’t get awkward. Here are some places you can look to check on your advisor’s disciplinary history.

To be fair, customer complaints may be present whether or not the advisor was guilty of said complaint. What is important to consider is the frequency and severity of any items listed. An advisor with 10 years of experience will have interacted with possibly hundreds of clients. A couple of customer issues, depending on the severity, don’t necessarily mean the advisor can’t be trusted.

Disagreements happen between advisors and clients and when they aren’t resolved, they often result in complaints. However, if the disciplinary history finds suspensions or a pattern of violations etc. you should think twice.

Here are some areas to search depending on the type of professional. To be sure, it is best to run a search in a variety of sources because some information may not show up in another.

Financial Industry Regulatory Authority (FINRA): This regulator used to be known as the National Association of Securities Dealers or (NASD) and changed its name a few years back as the result of a merger of regulators. This is not a governmental regulator but an industry regulator authorized by the United States Securities Exchange Commission (SEC). Financial advisors that are brokers and insurance professionals with securities licenses should show up here at Broker Check.

Securities Exchange Commission (SEC): This regulator is responsible for overseeing Registered Investment Advisors (RIA) and their respective Investment Advisor Representatives. RIAs will be under the jurisdiction of the SEC if they have assets in excess of $100 million. Those under that mark are regulated by the individual states. However, the SEC is still the place to go to review disciplinary history and disclosure information at Investment Adviser Public Disclosure

Certified Financial Planner Board of Standards: Not all financial advisors are Certified Financial Planners™ or a CFP® so you shouldn’t assume that your advisor will show up in this database. According to Investopedia, “The CFP designation is awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements. Individuals desiring to become a CFP professional must take extensive exams in the areas of financial planning, taxes, insurance, estate planning and retirement.” If your financial advisor is a CFP, he or she should be registered with one of the regulators above or both. You can view a CFP’s disciplinary and public disclosure history at Let’s Make A Plan.

Do you have suggestions for other questions to ask a financial advisor? Let me know!

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3 Comments

  1. It makes sense that the financial planner should be forthcoming with the information about the type of advisor they are. Taking the time to do a bit of research would be a good idea to get a feel for what kind of a person they are. Talking to family and friends who may have used their services before could also be a good idea to get some good information.

  2. First of all try to find a proper infomation regarding where to invest the money then it must be concern with financial advisor. If there are properly research data and information then it is good for the future.