Ask the Right Questions of Your Financial Advisor

If you want to achieve financial freedom by retirement age or earlier, you are going to have to invest a lot of money.  To invest successfully, you will need to spend the time learning how to invest or hand over at least a portion of the responsibility to a professional investment advisor.  Choosing an advisor is a huge decision and one that should be taken with care.  Where do you start?  Here is a list of questions to ask an advisor you are thinking of hiring or for the advisor you already have but don’t already know the answers.

  1. Are you a fiduciary 100% of the time?

    Acting as a fiduciary is the highest level of responsibility under the law.  It means, by law, the advisor must always act in the clients’ best interest.  There are two alternative standards that may appear to be equally protective for the consumer, but they are not: “Regulation Best Interest” and “Suitability.”  If having your advisor be a true fiduciary is important to you, you will need to ask a very specific question: “Are you a fiduciary under SEC rules and regulations, or are you held to one of the alternative standards of Regulation Best Interest or Suitability?” My preference is to get their answer in writing (See form at the end of this article).

  1. How do you get paid when I work with you?

    Advisors can get paid several ways, and certain compensation methods create potentially more significant conflicts of interest than others.

    • Commission only– The advisor receives a commission for selling you a product, including investment products.
    • Fee and Commission– Sometimes referred to as ‘Fee-Based’, the advisor charges fees on some things and commissions on others.
    • Fee-only– The advisor charges you a fee for investment management or financial planning. For investments, the fee usually is based on a percentage of the value of the assets being managed.  For financial planning, the fee is often based on an hourly rate.

Fee-Only typically creates the least potential for conflicts of interest.  For all methods, be sure the advisor discloses, in advance, both how they will be paid and how much.  If you just read this section and do not know the answer to the above sentence for your advisor, that is a clue that it is time to have a conversation.

  1. What industry credentials do you have?

    Why does this matter?  It is a strong indicator of the level of commitment an advisor has made to their profession.  If you are looking for financial planning in addition to investment management, you will want someone who is a Certified Financial Planner™ (CFP®).  This is a challenging designation that requires the advisor to pass a national exam; have a minimum of three years of experience in the field; get thirty hours of continuing education every two years and follow a strict code of ethics. All CFP’s are fiduciaries.  The gold standard for investment management is the Chartered Financial Analyst designation (CFA).  For tax-related advice, you will want to deal with a Certified Public Accountant (CPA).

  1. How do you work with clients?

    This goes more to both scopes of services and amount and type of contact and attention.  Before you hire an advisor, both of you need to be clear on what to expect.  What scope of services are you expecting?  How often do you wish to be contacted?  Who will be the point person you will be dealing with?  Do not sign up until you are perfectly clear about what this working relationship will look like.

  1. How long have you been directly advising clients?

    Particularly in the complex field of finance and investing, there is no substitute for years of experience.  A minimum of ten years of experience is recommended, in part, because a market cycle (bull-to-bear-to-bull) can last that long, and you want to work with someone intimately familiar with both.   In addition, the depth of knowledge required to master areas such as insurance, taxes, cash management, and estate planning requires years of practice working with dozens of clients, each of whom has a unique set of facts.

Your money and your future are too important not to ask the tough questions of your current or future advisor.  For a free form, click “Financial Advisor Disclosure Form,” or visit our Resource Center at the bottom of our Home Page and download it there; ask your advisor to sign it.

For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the money Tuesday segment.


professional photo of certified financial planner Stewart Welch wearing black suit and red tie

Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States.  He is the author or co-author of six books, including 50 Rules of Success J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaireand 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article.


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