15 Questions to Ask a Financial Advisor

At Pillar Wealth Management, our team holds a combined experience of 60 years in all aspects of wealth management. We utilize a host of tools and techniques that help you manage your wealth strategically and realize your goals. As a fiduciary advisory firm, your interests come first for us. Our team can help you prioritize your goals and achieve financial serenity. Reach out to us for a free consultation.

In this article, we will discuss important questions to ask a financial advisor. You’ll find some basic questions such as “How will our relationship work?” and “What’s your investment philosophy?” There are also more in-depth questions like “What asset allocation will you use?” and “How do you measure portfolio risk?”

Let’s begin.

1. What Is A Financial Planner?

You’ve already done some research, and you know that financial advisors and planners offer many of the same services, with lots of room for variation. Now, you’d like a real-life advisor’s definition. Let them tell you about their capabilities and how they can help you. Then, you can hire them to work with you on your financial goals while knowing they can get you there.

2. What Are Your Qualifications?

A good financial planner or advisor has at least a bachelor’s degree in a related field, such as economics or finance. They will also have a certification such as CFP (certified financial planner) or RIA (registered investment advisor), which means they will have passed intensive exams. Certifications may require ongoing education. They will also require adherence to a code of ethics and conduct.

A complete list of certifications is available on the FINRA website.

3. Are You “fee-only” Or “fee-based?”

Advisors’ compensation models vary, and a major distinction is whether or not the advisor is paid sales commissions. A fee-only advisor is compensated by only the fees paid by their clients, whereas a fee-based advisor is paid commissions as well as fees, making them liable to conflicts of interest. A fee-only advisor is more likely to put the best interests of the client first.

4. Do You Have Any Limitations?

You’ll appreciate having an advisor that can honestly tell you in what areas they may not have a high level of expertise. That honesty will carry over to all aspects of your relationship. And you want to know that the advisor has plenty of experience in those areas that are critical to your financial well-being.

5. What Are Your Investment Benchmarks?

Benchmarks are used to evaluate investment performance. A market index (such as the S&P 500) or indexes are often used as benchmarks. They represent a passive approach against which to measure an actively managed portfolio.

Bonds can be tracked using indexes created by broker-dealers such as Bloomberg Barclays Capital. Commodities can also be indexed.

The benchmark should match the asset class of the investments whose performance is being evaluated.

6. Who Is Your Custodian?

By knowing which custodian is used by the advisor to hold your investments, you will then be able to view your account with the custodian.

7. How Will Our Relationship Work?

If you are preparing a list of questions to ask a financial advisor, we recommend including asking them how they will work with you. For instance, how often can you expect the two of you to review your investment strategy? Will they meet up with you in person or engage via telephonic conversations? Will they be actively involved in every aspect of managing your wealth? Who else can you expect to work with?

Asking about these aspects, as part of the questions to ask a financial advisor, helps clarify your expectations from the get-go. It helps to know whether your financial advisor will take on a hands-on approach or vice versa. In our experience, the more involved they are, the better they’ll be at looking after your assets.

8. What Is Your Investment Philosophy?

The questions to ask a financial advisor before hiring them should always include, “What is your investment philosophy?”

It helps you make sure you are working with someone with similar ideals regarding wealth management. If you and your financial advisor are not on the same page and have different investment philosophies, it can create trouble for you.

Here are some examples of investment philosophies that you may adopt:

• Investing in undervalued securities with the expectation of their price appreciating in the future

• Investing in growth stocks belonging to companies with the capacity to see an increase in their earnings

• Investing in securities belonging to companies that share the same values as you

• Investing on the basis of historical data to discover market patterns and using them to buy and sell securities

Typically, a financial advisor should be flexible and open to developing an investment strategy that aligns with your investment philosophy. Financial advisors are required to behave as a fiduciary. This means that they must put your interests above their own. Finding out if they are a fiduciary should be included in your questions to ask a financial advisor.

If you and your financial advisor have different investment philosophies, it can lead to a conflict of interest. To learn why working with a fiduciary is important, read our guide on finding a financial advisor suitable for high net worth and ultra-high net worth investors.

9. How Will You Allocate My Assets?

Among the questions to ask a financial advisor, when you meet with one, should be “What asset allocation will you use?”

The answer to this will determine the kind of portfolio diversification you can expect. Many wealth managers fail to diversify an investor’s portfolio properly. Let’s take a moment to see how diversification works to understand this better. A diversified portfolio is one that carries investments across different asset classes. Typically, there are three asset types in a portfolio. These are cash, bonds, and stocks.

Now, let’s suppose that your financial advisor adds 10 different stocks from the pharmaceutical sector to your portfolio. Does this mean your portfolio is diversified? No, it does not. Even if you are investing in different stocks, your asset class hasn’t changed. Tour financial advisor also needs to include some percentage of bonds and cash in your portfolio to diversify it.

The type of asset allocation used also depends on your investment goals and your risk tolerance. For example, young investors have higher risk tolerance. Therefore, their asset allocation can contain a higher percentage of stocks vs. bonds and cash. Conversely, older and risk-averse investors can have portfolios with more bonds and cash.

If you want to learn more about asset allocation, read our guide on how high net worth families can boost portfolio performance.

10. How Will You Measure and Control My Portfolio Risk?

This is a key question to include on your list of questions to ask a financial advisor. Understanding how much risk you are taking on when you invest in an asset is a vital consideration for all investors. So, when you are preparing a list of questions to ask a financial advisor, you should also ask them how they plan to reduce your portfolio risk.

At Pillar Wealth Management, we utilize various techniques for controlling your portfolio risk. For starters, we develop an Efficient Frontier. This allows us to manage your risk while ensuring you are getting the best possible returns.

If at any point we see your risk levels increase, we can adjust your portfolio to ensure it aligns with your risk appetite.

If you are interested in learning about the Efficient Frontier, order a hardcover copy of our book – The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million. It’s free!

11. What Type of Costs Can I Expect?

On your list of questions to ask a financial advisor, you need to include the question of the type of costs you can expect when working with a financial advisor. Many financial advisors won’t be able to give an accurate breakdown of your investment costs. They may tell you about their service fee, but there are other costs that you need to be aware of too. Some examples include capital gain taxes, active management costs, passive management costs, bond sale spread, commissions, and internal expenses.

Knowing about these costs is usually a great way of filtering experienced wealth managers from amateurs. To learn more about how these costs influence your returns, see our guide on selecting a financial advisor for managing over $10 million in liquid assets.

12. How Will You Tailor An Investment Strategy to My Goals?

This should be a key question on your list of questions to ask a financial advisor.

When you visit a prospective financial advisor, they will likely talk a big game about the investment strategies they use and the various types of securities you can invest in. While this may sound very promising, you need to focus on your goals too.

On your list of questions to ask a financial advisor, you should include asking how the advisor’s strategy will help you achieve your goals. Essentially, you need a financial advisor willing to develop a strategy that works for you. After all, your goals are unique and require a custom investment approach to achieve them.

Unfortunately, most investment advisors offer cookie-cutter solutions that do little to help you realize your goals. If you want to avoid a similar fate, you need a financial advisor who will prioritize your goals. That’s not all. The wealth management company you work with should also have a system in place for tracking the progress of your goals.

They should tell you how far along you are after a year, identify what is working and what isn’t, whether you should make a change, all of which are important questions to ask a financial advisor.

At Pillar Wealth Management, we believe in helping our clients pursue their goals to achieve financial serenity. This type of investment approach doesn’t limit you to earning high returns and minimizing your risks. Instead, it helps you go after what you want and what contributes to your financial security.

Remember, it doesn’t matter how much the next investor is earning. What matters is that you were able to achieve what you set out to do.

If you want to learn more, we recommend reading our guide to the 5 essential shifts all investors should make to improve their portfolio performance.

13. How Will You Help Me Manage My Tax Burden?

This is another important item to put on your list of questions to ask a financial advisor. A qualified financial advisor will understand how tax rates work and how they impact your capital gains. As you may be aware, long-term capital gains and short-term capital gains are taxed differently. The former is taxed at 20% for high net worth individuals, while the latter is taxed at 37%.

You need to work with a financial advisor who understands how to balance your short-term and long-term capital gains to control your tax burden in an optimal manner. Your financial advisor should also be able to use your capital losses to offset your tax burden and lower your costs.

At Pillar Wealth Management, we work aggressively to lower your tax costs wherever possible. We also utilize a combination of active and passive management strategies that help you optimize your short-term and long-term gains. This ensures you are earning high returns without incurring high costs in the form of taxes.

Curious to find out more about how we do this? Then talk to our wealth managers in a free consultation session.

14. Have You Worked with High Net Worth Clients Before?

This may be one of the most important questions to ask a financial advisor.  When it comes to seeking wealth management services, experience plays a critical role in your success. Not all financial advisors are equipped to handle high net worth and ultra-high net worth investors with liquid assets worth $5 million to $500 million.

So, when you are wondering what questions to ask a financial advisor, be sure to find out about their previous clients too. Have they worked with people with a similar net worth? If so, how did they help them achieve the financial goals?

Discussing past clients also allows you to determine whether a financial advisor has the type of expertise you require.

If you have a net worth of $5 million to $500 million, we can help out. Book a free consultation with our wealth managers and find out how.

15. How Many Clients Do You Have Right Now?

One of the questions to ask a financial advisor is, “How many clients do you work with at a time?” Having a large client base isn’t necessarily a good thing here. While it could mean their services are in demand, it could also indicate that they’re managing multiple clients at a time. As a result, they may not be able to give you their undivided attention.

This type of problem frequently occurs in many Wall Street firms. These firms have an aggressive sales culture, and they require their advisors to sign up as many clients as possible to meet their periodic goals. Whether they can successfully do this plays a deciding role in their retention at the firm and provision of bonuses. Obviously, when someone is under that kind of pressure, their primary focus will be on getting you on board. Since they have taken on numerous other clients in the process too, they won’t be able to provide you with the type of service you need. So, don’t be shy about including this issue on your list of questions to ask a financial advisor.

At Pillar Wealth Management, we stick to a limited number of clients. This enables us to provide them with comprehensive wealth management services and help them achieve their goals.

Find the Right Financial Advisor    

As part of the process of finding the right advisor for you, you want to get answers to all your questions about the advisor so you can trust their abilities and feel comfortable working with them.

Ask the advisor about their background in finance and their education and certifications. Have them describe the services they offer and their typical clients. This will tell you whether or not the advisor can help you achieve your financial goals and ambitions.

You should find out how much it will cost you for the various financial services you may need.

Be Prepared for Your Interview

Your initial meeting with a potential advisor should include an in-depth conversation about your financial life. The more you share with your advisor, the better they will be able to advise you.

For example, your advisor will want to know about the major events happening in your life, such as getting married, having a child, or preparing for retirement.

They will want to know about your financial goals, both short- and long-term, such as saving for a house or a child’s education. You may want to start a business.

Regarding investments, let the advisor know about your expectations and concerns in terms of returns and risks. Describe your risk tolerance, as well as how much control you want to have over your investment accounts and how much guidance you may need in selecting investments.

Regardless of the advisor’s investment approach, you should expect complete transparency in the development of a financial plan and portfolio.

Bring some documentation for your income (e.g., W-2 forms) and liabilities, not only current debt but also anticipated future expenses and income (such as an inheritance). Include your recent tax returns, retirement plan documents, and your budget of expenses.

In a Nutshell: Questions to Ask a Financial Advisor

We hope this article proved a useful guide for which questions to ask a financial advisor. Remember, when you are working with a financial advisor, you want to create a long, productive relationship that helps assure your financial security. So, the questions to ask a financial advisor should include important ones like “How will our relationship work?” “What’s your investment philosophy?” and “What asset allocation will you use?”

If you happen to be a high net worth individual with $5 million to $500 million in liquid assets, reach out to us today. You can have a discussion with our wealth managers about the important questions to ask a financial advisor, and we can create a tailored investment strategy that secures your financial legacy.

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