Last Updated on February 28, 2022
What do you ask a financial advisor before hiring them?
Coming up with questions to ask a financial advisor is not a simple process.
Money is a taboo topic, and this is the person to whom you’ll open your financial life.
You may share your income, net worth, tax returns, estate plan, insurance coverages, and more with them. It can feel vulnerable the first time you do it.
You are likely sharing information you only share with a handful of other people. Plus, the financial advisor is going to provide advice to help you with critical financial decisions that may impact nearly every area of your life.
It’s important you know who you are hiring and that you feel comfortable with them.
Below are 10 questions to ask a financial advisor to help you get a feel for whether they are a good fit for you. I’m also going to provide my own opinion of what I would look for during each question to help provide context.
1. Are you a fiduciary 100% of the time and if so, how would you describe fiduciary duties?
This is one of the most important questions to ask a financial advisor before hiring them.
A fiduciary is someone who puts their client’s interests first. They are legally bound to put their client’s interest ahead of their own.
If I am working with a financial advisor who is going to provide guidance on my financial life, I want them to be a fiduciary 100% of the time.
I specify 100% of the time because some financial advisors are dually registered. This means they can be registered with a broker-dealer and a Registered Investment Advisor.
The problem with this arrangement is that they have different responsibilities to their clients depending on what hat they are wearing.
If they are wearing their broker hat, they only have to make recommendations that are “suitable.” They don’t have to be in a client’s best interest.
If they are wearing their investment advisor representative hat, they have to make recommendations that are in the best interests of their clients.
Unfortunately, it can be hard to tell which hat they are wearing.
Brokers, insurance agents, and other professionals are important and helpful experts in their field, but I wouldn’t hire them as my financial planner because their expertise lies in other areas, there are conflicts of interest, and there is no fiduciary standard.
I also like asking “How would you describe fiduciary duties?” because it gives you a sense for how they see their responsibility to you. It’s going to require the financial advisor to elaborate and allow you to get a feel for who they are as a person.
Even if the person I am interviewing has the title of “Financial Advisor”, “Wealth Manager”, or “Financial Planner” on their business card, if they are not a fiduciary 100% of the time, I don’t need to ask the other nine questions on this list.
I expect someone to be a fiduciary 100% of the time if they are going to be giving me financial advice.
2. Will you describe your education, credentials, and experience?
Although education, credentials, and experience are important, I know plenty of people with excellent education, difficult-to-get credentials, and decades of experience who I would never hire.
I also know people with little education, no credentials, and only a few years of experience who I would hire.
At the end of the day, I want a financial advisor who has the knowledge and expertise to provide thoughtful and helpful advice. I also need that financial advisor to communicate it to me in a way that I understand.
I still like asking the question because it is going to give you insight into the path they took to get to this moment.
Education
For education, I’m not looking for anything particular. Their degree doesn’t have to be in finance, but I am interested in how they have gained knowledge to provide helpful advice. If they worked for another financial planner for a few years, they may have learned more in that time than any degree or credential could teach them.
Credentials
For credentials, the CFP® marks are considered to be the gold standard in the industry. It requires coursework, education, and experience. The coursework covers many areas of financial planning, such as general principles of financial planning, insurance planning, investment planning, tax planning, retirement planning, and estate planning.
The CFA® marks are also considered to be a gold standard in the industry, but they are more focused on investments than financial planning.
There are other credentials, but be aware of what it takes to get the credentials. Some are easier to get than others. Some are focused on a certain area of financial planning or investments. In other words, each credential does not help equally in furthering a financial advisor’s knowledge.
Another question to ask could be, “Why did you complete the credentials you have?” This may give you insight into which areas of financial planning they enjoy most and what is important to them.
Experience
Although it’s possible to find someone with less than five years of experience who is very knowledgeable, I would prefer someone with at least five years of experience.
Five years of experience working with a company or other advisor who is very knowledgeable is going to give someone the opportunity to see many different financial planning scenarios and help build a solid foundation of financial planning knowledge.
I see five years as a minimum. Ideally, they are going to have 8+ years of experience. From my experience, that’s when many financial planners start to feel very comfortable in a wide variety of financial planning situations.
Please keep in mind not all experience is created equally, and that’s why I don’t like using the number of years of experience as a hard cut off. If I meet someone who worked for an insurance salesperson for 10 years and then transitions to a financial advisor role, they technically have 10 years of experience in financial services, but may not have the best experience to provide financial advice on many different topics.
Even experience from one firm to the next may vary. Each firm is set up differently and has client service coordinators, associate advisors, and financial advisors doing different tasks.
I’d recommend asking about their experience and listening as they describe roles they have had. That will give you a better idea about what sort of knowledge they may have to help you.
You can also confirm someone’s experience and disclosures using the Investment Adviser Public Disclosure.
Please keep in mind that a disclosure does not necessarily mean a financial advisor did something wrong. They can be customer complaints, regulatory actions, and employment terminations.
Allegations of misconduct are still reported even if the allegations are without merit. If you see a disclosure, you should read it and consider the following:
- What are the allegations?
- Is there a pattern of disclosures or does it seem like a one time event?
- Was the complaint “denied” or did they settle?
- If it was settled, for how much was it settled?
- How did the financial advisor respond to the complaint?
Checking on someone’s experience, how long they have spent at each firm, and if there are disclosures is an important part of your due diligence process.
3. Who is your independent custodian?
A custodian is a company who physically holds your assets.
For example, Charles Schwab, Fidelity, and Vanguard are custodians. They hold securities, cash, and other assets to minimize the risk of theft or loss.
I would only want to work with a financial advisor who uses an independent custodian. Although it’s not a foolproof way of avoiding theft or loss, it minimizes the risk significantly. Custodians have many safeguards in place and some have a security guarantee.
Bernie Madoff had the largest Ponzi scheme in history, and part of his success in defrauding investors was due to the fact that he didn’t use an independent custodian. Investors gave Madoff money and that money was deposited to a bank account. That bank account could then be used to pay off existing investors who wanted to cash out.
If a custodian is the one who holds your money, you can use their statements and online portal to track your money and know what is going on inside of your accounts.
4. How does your company get paid and how are you compensated?
Although these are similar, they are two distinct questions. They are both important questions to ask a financial advisor, and I often only see the question, “How do you get paid?”
Knowing how the company is paid can help you realize if you are going to be cross sold into other services or products. For example, if the company can get paid by insurance commissions, referrals to other professionals, or non-traded investments, you may want to do more due diligence around those recommendations.
It’s not necessarily bad if a company is paid more than one way, but it does raise the potential for more conflicts of interest. Plus, a financial advisor may not get compensated for certain activities, but it may be encouraged on the firm-level if the company can make money from it.
Knowing how the financial advisor is compensated is really important, too. If they can earn commissions based on certain actions you take, that might influence their advice.
It’s not uncommon for financial advisors to also sell insurance as a convenience for clients. It’s not necessarily bad. It’s simply something to be aware of.
If someone is holding themselves out as a financial advisor and the only way they are compensated is by insurance commissions, that’s problematic. In that situation, insurance has to be the solution for the financial advisor to make a living.
Two common terms you will hear are “fee-based” and “fee-only.”
Fee-based is a popular model. In this arrangement, financial advisors can earn commissions when acting as a broker-dealer, selling insurance, or selling certain investment products.
I’m partial to the fee-only model, which is why I founded Kindness Financial Planning to be fee-only. Fee-only financial planners are compensated for their advice, for their help implementing plans, and for managing investment assets. They are not compensated based on someone buying different investment products, insurance, or referral fees. They receive no commissions whatsoever.
Compensation models are really important to understand not only on the company level, but for the financial advisor you are interviewing. You want the advice you are receiving to be as free from conflicts as possible.
No compensation model is completely conflict-free, which is why it is important to understand how the company and financial advisor you interview makes money.
5. What are the total costs of working with you and what types of services are included in your fee?
You want to understand what you will pay and what is included for that fee.
If a financial advisor offers comprehensive financial planning, what does that actually include? Does it include tax projections? Does it include a review of your insurance coverage? Will they talk to you about college planning?
If they offer tax preparation, what are those costs? Are they included in the financial planning engagement or are they separate?
You also want to ask about investment costs. Although a financial planner may be “free” or really cheap, they may be compensated by the investments or insurance products they recommend, which could be far more expensive than a financial planner who charges for their time.
For example, if a financial advisor claims not to charge any fees, there is a good chance they are being compensated by the investments or insurance products they are recommending.
I recommend looking at the ADV Part 2 Brochure for the company. It describes the different ways of working with an investment advisor and their fees.
6. What’s your investment philosophy and how do you pick investments?
Do they believe in globally diversified investments? Do they only invest in US Markets? Do they own individual stocks or funds?
Do they try to time markets? Do they invest in private markets, hedge funds, or other non-traditional investments? Do they offer ESG investing or other impact investments?
Is there good evidence for why their investment philosophy works over time?
If it relies solely on a proprietary model that feels more like a black box, I’d be wary.
It’s good to know how they pick investments. This way you have a better understanding of why an investment would be bought or sold in your portfolio. Is it an investment committee that decides or is it your financial advisor choosing? Do they have a menu of options to choose from, only proprietary funds offered by their company, or can they use any investments?
How do they track and think about investment expenses, taxes, and capital gain distributions?
Knowing how they pick investments can help give you a framework for how they make decisions during market volatility. Those are critical times and knowing how an advisor rebalances or selects funds during those times can make a big difference.
If your investment philosophy and theirs does not align, it’s better to figure that out before they ever help you invest your money.
Bonus tip: ask them how they invest their own money.
7. Will you describe your typical clients?
This is a popular question to ask before hiring a financial advisor, and that is for good reason!
What you want out of this question is to determine if the financial advisor can help you address your specific needs or questions.
Have they helped people similar to you? Do they primarily work with people like you? Do they understand your concerns and know which questions to ask without you even asking?
Although there are plenty of financial advisors who have general expertise and experience who can do a great job, I’ve found when an advisor specializes in working with certain types of people or people going through a certain phase of life, the experience can be better.
You wouldn’t see a psychiatrist to fix a bone.
It should be similar for financial advisors and clients.
When a financial advisor only works with clients going through similar experiences, they may be more knowledgeable and design an experience that is tailored to address the needs, questions, and problems that arise during those experiences.
Through this question, you can ask how they have helped clients in a similar situation. This should give you a better feel for how they can help you.
8. Who will I interact with at your company?
This could be one of the most overlooked questions to ask a financial advisor.
Depending on the size of the company, you may only work with the financial advisor or you may work with an entire team.
Some companies have a business development person who meets with prospective clients and when someone is ready to move forward, they bring in a financial advisor team to help.
Before you get too far into your research, you may want to ask to meet the team you will work with.
Or, if you are meeting with a financial advisor who also has an associate advisor and client service coordinator, you may want to meet with them sooner in the process.
Depending on the company structure, you may communicate more with the associate advisor or client service coordinator as they help with paperwork, administrative questions, and might be your first point of contact when you call or email.
If that’s the case, you want to make sure you like everybody on the team.
It’s a good idea to know who is on your team and who helps with what.
9. What does a good client relationship look like with you?
This is one of my favorite questions out of all the questions to ask a financial advisor.
Good relationships are about proper expectation setting.
What do you expect the financial advisor to do and what does the financial advisor expect of you?
Not only will you get a feel for how the financial advisor defines a good client relationship, they may also reveal important other aspects, such as:
- How often you will communicate
- What form of communication to expect (in-person, phone, email, newsletter, etc.)
- What progress you might see in a few months vs. a few years
- How much time you’ll spend organizing your financial life
- What the advisor will do, what the advisor can help with, and what you need to do on your own
If they don’t reveal these types of things, feel free to ask. These are important pieces of information!
Does your vision of a good client relationship match theirs? If not, tell them what you are looking for and if there are ways to close the gap.
If they are too far apart, perhaps it is time to interview another financial advisor.
10. What do you enjoy most about your job and what do you like the least?
Being a financial planner can be an incredibly rewarding experience.
I love what I do because it blends the technical side of financial planning with the emotional side of money. Each financial decision is like a puzzle with many ways to put it together. I get to talk to people about money and help them put that puzzle together. I feel incredibly fortunate for the unique role I get to play in people’s lives.
Ask the financial planner you are interviewing what they enjoy most about their job. Where do they light up? What are they passionate about? What stands out to you?
This is a good opportunity to get into the heart of why they started on this career path, why they continue, and how they see their role evolving over time.
I also like the question of, “What do you like the least?” because every career has downsides.
Are they open and willing to discuss some of the challenges of being a financial planner?
I’ve found that someone sharing what they don’t enjoy can almost be more illuminating than sharing what they do enjoy.
Final Thoughts – My Question for You
Hiring a financial planner is not easy.
There is no standard education path, experience, or even licensing requirement in the financial services industry to allow someone to call themselves a financial planner. This is different from other fields like medicine and law.
This is unfortunate because your financial planner could become one of the most important and impactful professional relationships in your life.
A financial advisor shouldn’t make you feel bad about your financial situation, use words that confuse you, or pressure you into anything.
A financial planning relationship should be collaborative, open, and honest.
Although the 10 questions to ask a financial advisor are a good start, I also like the gut test. If your gut is telling you no, that’s an important signal to consider.
Lastly, it’s normal to go through an interview process with multiple financial advisors. Take the time to find someone you think you will work best with, and don’t be afraid to ask the tough questions.
Some of the best conversations I’ve had are when people hesitate to ask a question and then do it anyway.
Feel free to make your own list or use this list as a guide of questions to ask a financial advisor.
I wish you the best in interviewing financial advisors!
