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Questions to Ask a Financial Advisor

Jan. 9, 2013
Personal Finance
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You’re on the look out for a financial advisor to help you get your money situation in check. You’ve set up some initial meetings to check out prospective advisors. Now what?

It’s good to come into the introductory meeting with some well thought-out inquires, so you get a better sense of what the advisor is all about, and whether their philosophy aligns with what you want or need out of a financial advisor.

Here are six questions you should ask any financial advisor, and the answers you should be listening for.

1. How do you get paid?  There are several different ways financial advisors can get paid. Some go by an hourly or flat rate while others take a commission per transaction or work on an AUM (Assets Under Management) basis, meaning they charge you a percentage of the total portfolio they manage.

2. What are your credentials? This question almost seems too easy, but it’s an important one to ask nevertheless. Ask the advisor about his or her background. Where did they go to school? How did they get in the profession? Look into their regulatory records online at sites such as BrokerCheck, operated by financial services regulator FINRA. You can find many professional investment advisors’ license information and more there with a few easy clicks. If you are considering working with a financial advisor who isn’t regulated by FINRA–such as many Certified Financial Planners–ask them which financial regulatory organizations oversee them, and how you can get in touch with these regulators to verify their credentials.

3. Can you provide several references? Think of this entire process as an interview, with you as the hiring manager. Ask your potential advisor for three references, and then get in touch with these references to follow up. The references may be former clients, or other professionals, such as accountants or lawyers, who work with the advisor in the course of serving clients. You can call these people and discuss the advisor’s background and help put your mind at ease about their track record and professional ethics.

4. What specific services do you provide? When it comes to finances, everyone has a different agenda. Are you looking to invest? Are you more interested in budgeting for your child’s college education? Have you come up with a retirement plan? Make sure to talk with the advisor about areas they are especially qualified in and how that fits in with your goals.

5. How often will we be in touch? What are your expectations when it comes to communicating through the years? Do you want the advisor to be available via email or in case of financial emergencies? How many times a year do you expect to meet in-person? Is the advisor willing to meet with you using video conferencing, or be available for phone calls? Make sure you are both on the same page when it comes to open communication.

6. Can I get that in writing? Have the financial advisor put everything in writing—from their fees (or other payments) to their overall goals for you and your financial plan. Don’t be afraid to have them supply you with examples or strategies on how they plan to help you achieve your goals. If they can’t come up with something on the spot or seem confused by what you are asking, you might want to question their credentials.

Remember it’s always okay to be picky, and that there’s no such thing as a dumb question. Hiring a financial advisor requires trust, so make sure you trust the person you’re working with, and have solid reasons for doing so.

Interested in learning more? Visit NerdWallet’s Ask an Advisor.