Questions to ask your Financial Adviser


Questions to ask your Financial Adviser

Many people I know have financial advisers. Personally at Invest Correctly we recommend you learn to purchase index funds and grab yourself a Vanguard Account and start here, How to Invest. But maybe you ended up with a financial adviser and you aren’t so sure but just go with them. Many times for various reasons people begin to question their financial advisers and their motivations. We can help!!! The trick is to make sure you realize what motivates them and how they are getting paid. Are you simply paying for advice? Are you paying them to make specific trades on a per basis which leads to them wanting you to trade frequently? Are they receiving commissions if you purchase certain funds? Are they charging you no fee but steering you into high priced funds secretly taking your money? Many of these questions are very very simple but a lot can be gathered in how a person responds and some of the terms they reinforce.

  1. So what lead you to managing money?
  2. What is mission statement of the firm you work for?
  3. What drives you to get up in the morning?
  4. What is your investment philosophy? Do you advocate individual stocks or mutual funds
  5. What is your philosophy towards choosing investments and what investment approach do you believe is the most successful for your clients and why?
  6. Do you use technical analysis? Do you use market timing? A yes to either of these or even an attempt to explain how they do this is an immediate sign to get out of there.
  7. What do you do when an investment performs poorly? You want someone that realizes the market is long term and has convictions towards his strategy.
  8. Do you exclusively focus on asset management or do you also advise on taxes, estates/retirement, and other things like insurance?
  9. What’s your education background like?
  10. What is your typical client goals?
  11. How do you track and report my progress and your progress towards my financial goals?
  12. Do you when recommending investments, accept any form of compensation from any third party? Why or Why not?
  13. How much in actual dollars, do you estimate I would pay for your services the first year? What would make that number go up or down over time (If fees consume more then 1% of your assets annually you should probably look elsewhere)
  14. How many clients do you have and how often do you communicate with them?
  15. Can I see a sample account statement? Obviously ask for an explanation if you can’t understand it
  16. How high a return do you think is feasible on my investments? You do not want someone who promises you the sun, moon and stars. If they promise over 8-10% long term then it is a red flag

Things you want to hear in answers.

Things you DO want to hear include a focus on the long term, value investment, low cost index funds. Clear concise fee structures that don’t have hidden values. Easy to read account statements. You want a financial adviser who manages his expectations and doesn’t promise the sun moon and stars. You want one that isn’t motivated by how often you trade and that treats you and his clients fairly. You want one that sets reasonable benchmarks like beating certain indices and can prove he has. You want ones with successful clients. If things seem too good to true they probably are.

Things you don’t want to hear in ANY answer.

“offshore”, “the opportunity of a lifetime”, “prime bank”, “This baby’s gonna move”, “guaranteed”, “You need to hurry”, “It’s a sure thing” “our proprietary computer model”, “The smart money is buying”, “options strategy”, “it’s a no-brainer”, “You can’t afford not to own it””We can beat the market”, “You’ll be sorry if you don’t…”, “Exclusive”, “You should focus on performance not fees”, “Don’t you want to be rich?” “can’t lose”, “The upside is huge”, “There’s no downside”, “I’m putting my mother in it”, “Trust me”, “commodities trading”, “monthly returns” “active asset-allocation strategy” “We can cap your downside” “No one else knows how to do this”