Good Questions to Ask a Financial Advisor

This article is for informational purposes only and is not financial advice.

Choosing the right financial advisor is a crucial step toward securing your financial future.

However, that’s easier said than done, because the financial advice landscape is so complex.

The financial advisory landscape is crowded with different titles, designations and pay structures, making it confusing for consumers. And here’s something that complicates factors further: There are no strict standards for defining who can use the title of financial advisor.

With all that in mind, you should arm yourself with the right information before meeting with a financial advisor. Let this list of good questions to ask a financial advisor guide you through making an informed decision, so you find the perfect financial advisor who aligns with your values and objectives.

AAA does not offer financial advisor services, but we do offer a variety of financial products that can help you, including loans, reverse mortgages and more.

5 Good Questions to Ask a Financial Advisor

What’s your approach to personal finance and investing?

Understanding your advisor’s approach to personal finance is critical. You’ll want to assess their knowledge in tailoring approaches to your needs, creating an asset allocation suitable for your individual situation. Ask them about their:

• Overall strategy.
• Risk tolerance.
• Preferred investment style.
• Approach to market volatility.

A reliable advisor will also take time to understand your financial picture, asking detailed questions to tailor a plan based on your immediate needs and long-term goals.

Are you a fiduciary?

“A fiduciary is someone who manages money or property for someone else. When you’re named a fiduciary and accept the role, you must – by law – manage the person’s money and property for their benefit, not yours,” according to the Consumer Financial Protection Bureau.

This sets them apart from non-fiduciary advisors who lack the obligation to offer the most cost-effective or well-suited investment options and may face conflicts of interest with recommended investments that might boost their fees.

In contrast, financial advisors who are fiduciaries focus solely on recommending options that genuinely benefit the client, and they are mandated to disclose any potential issues openly. This transparency ensures that you, the customer, can have confidence that your financial advisor is dedicated to your well-being and only making suggestions that align with your financial objectives.

How are you paid?

Navigating financial advisor compensation can be tricky, but simplicity and transparency are key. The National Association of Personal Financial Advisors (NAPFA) backs “fee-only” advisors to avoid conflicts of interest. These advisors may charge:

• A percentage of managed assets.
• A flat service fee.
• An hourly rate.

In contrast, steer clear of full or partial commission-based pay to avoid conflicts of interest. But even within fee-only services, it’s vital to inquire about the specific business model and obtain a yearly cost estimate. Knowing the fee structure aids in assessing costs and ensuring transparency in your financial partnership.

What professional credentials and qualifications do you have?

 It’s essential to assess a potential financial advisor’s qualifications to make sure they have the right expertise and are committed to continuous professional development. Simplify the process by asking about their:

• Education.
• Certifications.
• Memberships in professional organizations.

Whether they go by the title investment advisor or hold a Certified Financial Planner (CFP) designation, understanding a financial professional’s credentials can be confusing. Other standard designations include Chartered Financial Consultant (CFC), Chartered Financial Analyst (CFA), or Registered Investment Advisor (RIA), each requiring comprehensive education, exams and relevant work experience.

BrokerCheck, a database compiled by the Financial Industry Regulatory Authority (FINRA), clarifies these designations, detailing education requirements, accreditation, disciplinary actions and professional status.

How will you communicate with me?

Effective communication is vital for a successful financial advisory relationship. The Institute for the Fiduciary Standard recommends to financial advisors that “all important client agreements and disclosures are put in writing and that no written or verbal statements are misleading.” With that in mind, you’ll want to gauge a potential advisor’s communication preferences and ask about their:

• Frequency.
• Preferred methods.
• Level of client input in decisions.
• Availability for calls or emails outside scheduled appointments.

A good advisor keeps lines of communication open, so you’re regularly updated on investments, market changes and adjustments to your financial plan, fostering collaboration and transparency.

Learn about AAA financial services.