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7 Questions to Ask When Choosing a Financial Advisor

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Peak Credit Union
4 min read

Working with a financial advisor can be life changing. When you find the right advisor, you gain a partner who can educate you and help you make confident decisions when managing your money to reach your goals. To help you determine if an advisor would be a good fit for your personal situation, we’ve compiled some useful questions to ask yourself – and your advisor – when deciding who to work with.

Questions to Ask Yourself

What are my short-term and long-term financial goals?

A financial advisor works for you and with you. For the partnership to thrive, you will need to clearly explain how you define financial success. Understanding your short-term and long-term goals beforehand allows you to find an advisor who is aligned with those aspirations and can help you achieve them.

What is my risk tolerance?

To invest your money appropriately, an advisor needs to know your risk tolerance. Are you willing to take risks for potentially higher returns? Or are you risk averse and prefer steady, conservative growth? There’s no right or wrong answer when it comes to risk tolerance; everyone is unique in what feels acceptable. Regardless of your feelings, it’s important to be transparent with your advisor so they have clarity on how to manage your money within your comfort zone.

Questions to Ask a Financial Advisor

What services do you provide?

This question will quickly help you determine if your advisor can support your financial goals. Financial planning is a general term that has several specific areas of focus, from estate planning to budgeting to retirement planning and more. By asking this question upfront, you can save wasted time and resources if the advisor’s services don’t align with your needs.

Are you a fiduciary?

A fiduciary is legally and ethically required to act in your best interest. It’s a duty that prohibits them from merely recommending products they could be commissioned on, while also requiring them to disclose any conflicts of interest in real-time. When asking this question, which should be documented in writing, you will find an advisor you can rely on to act with your needs – not their wallets – in mind.

What experience do you have?

This might seem obvious, but it’s important to understand your advisor’s credibility before you commit. Although tried-and-true-experience is invaluable, there are several certifications that require a person to study and pass an exam. Often appearing as an acronym after an advisor’s name, some distinctions to look for include, but are not limited to:

  • CFP = Certified Financial Planner
  • CFA = Chartered Financial Analyst
  • AIF = Accredited Investment Fiduciary

In addition to asking about experience and education, you can review an advisor’s background on the Financial Industry Regulatory Authority (FINRA) website’s free BrokerCheck tool and ask for their Form ADV, which contains information submitted to the United States Securities and Exchange Commission (SEC). This disclosure provides insight into their compensation structure, firm history, conflicts of interest, and any misconduct.

Verifying an advisor’s capabilities and ethics is a step towards establishing trust and transparency. If an advisor doesn’t want to share this information, consider it a red flag.

How are you paid?

They say it takes money to make money. It’s only fair, considering advisors spend their time stewarding your accounts, growing your assets, and planning for your future. Asking how an advisor is compensated is crucial to assessing the value they bring to you.

There are three main payment methods: fee-based, commission-based, or hourly. Reviewing and understanding pricing schedules is an important part of selecting an advisor. If their compensation structure doesn’t make sense, ask for further explanation.

It’s also worth noting that advisors who are paid commissions can have conflicts of interest. If your advisor is compensated from commissions and is not a fiduciary, you may want to ask how they will disclose any potential conflicts of interest to you.

What is your communication style?

It’s important that you and your advisor have open, clear lines of communication. There will be unnecessary confusion if your advisor cannot understand your needs or clearly explain what they’re doing with your money and why. When selecting an advisor, have a conversation about your preferred communication method and frequency. Setting clear expectations early on will have a meaningful impact on your working relationship.

Final Thoughts

Choosing a financial advisor is an important decision. It’s crucial to research potential candidates and determine if they are a good fit for you. Don’t be afraid to take your time. Even if it means going back to the drawing board, no decision is better than a rushed one – especially when it comes to your financial well-being. Hopefully, we’ve helped prepare you for your search by covering what you should ask of a financial advisor. Good luck! 

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