If you’re planning to retire within the next 10 to 15 years, you’re probably looking for ways to make your retirement savings go further. For many investors, that’s when it makes sense to transition from a DIY-savings strategy to a partnership with a financial advisor, who can help guide you through the money decisions you’ll need to make when choosing how — and when — to access the stash of cash you’ve worked hard to build.
Still, it’s not always easy to find a pro who’s the right financial fit. Does their style and strategy align with your goals? Does the fee structure fit your budget? How well do you get along? Most investors are in the relationship for the long-term, so it’s important to choose the right financial advisor from the start. With that in mind, here are some questions to ask a financial advisor so you can find out if you and your would-be advisor share a potential money connection.
15 questions to ask a financial advisor
What services do you provide for clients?
It’s important to understand what your financial advisor will do for you and your overall financial plan before you get invested, both financially and emotionally. A financial advisor does much more than help you decide how much to save for retirement.
“You cannot create the right strategy for a client until you understand when the money will be needed and how much will be needed on an annual basis,” says Sammy Azzouz, a certified financial planner and president of Boston-based Heritage Financial Services. That’s particularly true for investors who are almost finished saving for retirement. They’re the ones who will most likely benefit from a comprehensive financial plan, and not just a wealth accumulation strategy.
Are you a fiduciary?
Believe it or not, not all financial advisors are required to act in the best interests of their clients. Broker-dealers, stockbrokers, and insurance agents are held to what’s known as a suitability standard, which requires merely that financial recommendations are deemed suitable. That basically means a non-fiduciary can recommend an investment or insurance product that’s good enough, though there may be a higher-quality or lower-cost alternative available.
A fiduciary, on the other hand, is bound by law to not only act in a client’s best interest but also to put that interest ahead of their own. That means they’ll avoid any conflicts of interest (and disclose any that crop up) while seeking the best financial solutions at the best price and term.
What fees do you charge?
Fee-only and fee-based payment models sound an awful lot alike, but they’re actually vastly different.
A fee-only financial planner is paid directly by you, the client, either by a flat fee, an hourly rate, or a percentage of assets under management. In short, the fees you pay are transparent and easy to figure out.
A fee-based planner, meanwhile, may charge a flat fee, but will also often collect commissions from mutual fund, insurance, and other financial providers. The key takeaway here is that commission-based fees are not always easy to spot or understand, but they can easily eat away at portfolio performance.
Do you receive any commission?
Another way to get around the sometimes-confusing language that some financial professionals place around fee structure is to cut right to the chase and ask what commission they receive. Although a commission-based planner isn’t necessarily putting their paycheck before your investment potential, it can be a red flag.
A portion of brokerage fees, mutual fund load fees, and insurance premiums will often wind up in your fee-based or commission-based advisor’s pocket. That’s why it can pay to read the fine print on any investment documents.
What is your investment philosophy?
Having a fundamental understanding of your advisor’s “investment philosophy is a critical component of ensuring your interests align with your potential advisor,” says Emily C. Smith, director of financial planning at Williams Jones Wealth Management in New York City.
That’s true whether you’re a fan of underpriced investment securities, which is how Warren Buffet made his fortune, or want to get in early with up-and-coming companies with the potential for massive growth over time — how famed stock picker Peter Lynch built his career.
Your views on how to invest money should shape your asset allocation, determine how often you want to make trades, and how sensitive you are to taxable events. A financial advisor who shares your investment worldview can help make sure your long-term money decisions align with your inclinations.
What’s your investment strategy?
Although an investment philosophy includes an advisor’s overarching view of the markets, an investment strategy puts that philosophy into practice. It’s basically where the rubber meets the road.
An advisor with a cost-sensitive philosophy, for example, will often seek passive-management investment products like index-tracking mutual funds or exchange-traded funds (ETFs), which are typically associated with a lower fee structure.
When vetting potential partners, check whether their stated philosophy lines up with their investment strategy and your own.
How will you diversify my portfolio?
Maintaining a proper portfolio balance of stocks, bonds, and other investments is often the most effective strategy for reducing investment risk and smoothing the effects of market volatility. You’ll likely want to rebalance assets and reassess allocation decisions, particularly as you inch closer to retirement age.
A nest egg that’s been hit by a market dip will generally recover over time, but the closer you are to retirement, the less time there is to rebound. That’s why many advisors allocate a greater proportion of assets to safer investment types like bonds or even cash — which you’ll likely need on hand once you decide to retire.
What licenses and certifications do you have?
This is an essential question to ask potential financial advisors because you’ll want to make sure the skills they bring to the table align with the strengths you’re looking to leverage.
A CFP, for example, worked through a full financial planning course load before sitting for and passing a six-hour exam. Specialists in a particular area, such as divorce or small business planning, may hold the chartered financial consultant designation, which involves four months of coursework and test-taking. If you’re looking for more tax-specific advice, you may be better served by an advisor with a certified public accountant designation.
Will we be working together over the long term?
An effective financial advisor will put in the time to get to know you, your long-term goals, and your perspective on stock market ups and downs. That’s why you’ll want to work with someone who’s in it for the long haul.
Still, the answer to this question isn’t always obvious. The financial planning field has a notoriously high turnover rate, particularly among those who are new to the field. At the same time, more seasoned planners will eventually develop a succession plan as they prepare for their own retirement.
It may be work asking, then, how long a potential advisor has been in business and how long until they plan to retire.
How many clients do you currently work with (and who else might work with me)?
If a financial advisor has too many clients on their books, it may mean one of two things: either they won’t have the time to devote to each of her clients (in which case, the highest-net-worth clients are most likely to get the lion’s share of her attention) or that they’ll designate a junior-level person to your account.
“There are only so many hours in a day, so customizing a plan and giving attention and care to each client is not possible,” says Nick Kolbenschlag, co-founder and managing partner at Crown Wealth Group in Charlotte, North Carolina, of advisors who take on a high volume of advisees. In that scenario, “everyone gets the same canned advice,” he adds.
Instead, look for a planner who takes more of a boutique approach, which allows for higher-quality, more customized advice.
What is your communication style?
Whether you’re looking for a financial partner who will reach out regularly, or you’d rather just hand off your financial life to a pro, it makes sense to work with someone whose communication style matches your own. Ask how often you’ll hear from your potential advisor in a year and through which methods (in-person, via phone, or through a quick email, for example).
It may also be important to partner with a financial advisor who has experience working virtually, particularly during the pandemic. Does their preferred video platform offer the safety and security you’d expect from a financial pro? And, is it technology you’re familiar with or easily get up to speed with?
What are your professional and personal strengths?
In the end, all these questions should help you find the right fit for what will ultimately be a long-term financial relationship. Your potential advisor may have all the right credentials like a CFP or CFA, but maybe you need advice that’s more tax-centered or just want to work with someone who’s great at reaching out during a rocky market. Finding a partner with the right skills and strengths can help save you from making costly retirement mistakes down the road.
What are you working on improving?
Constant improvement is one of the most effective ways for everyone to stay on top of their professional game. Talk to potential financial advisors about what they’re working on improving. How current are they on industry trends and changing regulations? How do they work to improve client relationships? What ongoing training do they find effective?
These questions to ask a financial advisor can help you decide whether your potential advisor has the perseverance necessary to build and maintain a long-term wealth management strategy.
What are the tax implications of working with you?
Although many financial advisors are not also CPAs (though some are), a reputable professional will make sure you understand the tax implications of the financial actions you’ll work together to take. That may include any short- or long-term capital gains taxes due after selling a stock or mutual fund in a taxable portfolio, a penalty for taking IRA funds out early, or just ordinary income taxes due when taking a distribution from a 401(k).
In short, your preferred advisor should be able to walk you through any tax consequences of your money moves. If you’re looking to talk about your tax return, that’s when you may want to turn to your CPA.
Which company will hold my assets?
Although a financial advisor offers investment and planning advice, your money is typically held by a third party such as a bank, investment firm, or credit union. That third party, or custodian, will execute any buy or sell orders and send you financial statements and regulatory materials. This setup is mandated by the U.S. Securities and Exchange Commission, which is responsible for protecting investors from fraudulent activity.
Although some large Wall Street firms have their own custodial arms, in addition to their financial planning practices, many Main Street planners work with outside custodial firms to avoid any potential conflicts of interest. In the end, the key takeaway is to know who holds your assets, and how you can access them.
A partnership with a financial advisor can be an important, long-term relationship that can have a dramatic impact on your financial future. To find the right fit, take your time, ask questions, and carefully consider your options.