Looking for a Wealth Advisor? Here are 7 Questions to Ask

Looking for a Wealth Advisor? Here are 7 Questions to Ask

Over half of U.S. adults are somewhat or very anxious about their finances. But those who work with a financial planner worry less.1 How can you pick an advisor that’s right for you?

Published by Motley Fool Wealth Management Originally posted on Tue, Sep 20, 2022 Last updated on August 22, 2023

read time 5 min read

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Are you looking for ways to reduce your stress and get better sleep? The sleepfoundation.org recommends taking a warm bath, avoiding blue light, or meditating before bed.

What else may help? Working with a financial planner. According to a Northwestern Mutual study, individuals reported less stress and better sleep compared to those who didn’t have a wealth advisor. As described below, the reason is, unfortunately, widespread.

Over half (54%) of U.S. adults are somewhat or very anxious about their finances. That anxiety ratchets up drastically for Gen Zs and millennials—the same research shows that two out of three (66%) worry about money. However, those who consider themselves disciplined financial planners (47%) worry less. And people who work with a professional financial planner (46%) have even fewer worries.1

How a financial advisor can help

Financial advisors do more than put your money in investments and savings vehicles. They also should take the time to understand your goals, current financial situation, risk tolerance, and values to create an intentional financial plan. Then they may offer objective advice—such as recommended investment products—and lay out a clear roadmap to help your reach your goals.

They should start by taking a big-picture view of your finances. For example, they'll ask you questions about when and where you want to retire, if you're going to make a big purchase in the next few years, and whether you wish to leave money to heirs. There will also be more reflective questions, such as do you plan on taking care of aging parents or paying for college, or what will happen if you lose your job.

A wealth advisor also helps you stay focused on your plan and tries to prevent emotions from influencing decision-making. Unfortunately, this is one of the most prominent challenges investors face. It’s hard not to react to adverse short-term market movements. But an advisor can be a voice of reason and help you stay focused on the big picture.

7 questions to ask a financial advisor

Choosing a financial advisor may be one of the most important decisions you will ever make. This person can influence critical investment and planning decisions, and the quality of advice could heavily influence your long-term financial success. Whether preparing for retirement, planning an estate, selling a business, or handling a wide range of complex financial matters, having the right advisory relationships is vital.

But the choice may not be easy. The financial services field includes several different types of advisors with various qualifications, experience, and services offered. So first, determine your primary needs, such as establishing a nest egg, planning your retirement, or buying a house. Then look for advisors with experience in those areas.

While most advisors can develop general long-term financial strategies, only a few specialize, like offering services to business owners or women-led households. If you need specific experience, seek out advisors who qualify.

We’re here to help. Here‘s a checklist of seven questions to consider before you select a financial professional.

1. Are you a fiduciary?

A fiduciary is bound by law to always act in your best interest. But not all professionals that offer financial advice are fiduciaries. For example, broker-dealers are salespeople regulated under the Securities Exchange Act of 1934, while investment advisors fall under the Investment Advisers Act of 1940. The difference?

While many broker-dealers offer advisory services similar to those offered by investment advisors and may even use the title of "Financial or Wealth Advisor" for their registered representatives, they are not subject to the same legal standards as registered investment advisors (RIAs).

Broker-dealers must meet a suitability standard, whereas RIAs have a fiduciary duty. The fiduciary duty affords investors more protections than the suitability standard, including, as we mentioned earlier, acting in clients' best interests. More specifically, fiduciaries must appropriately manage clients’ money and fully disclose conflicts of interest that could bias their recommendations.

2. What are your qualifications?

Check any prospective advisor's qualifications and experience level before working with them. While certifications and professional designations don’t necessarily indicate a level of proficiency, they do demonstrate formal training and education. For example, most professional designations require that candidates exhibit competence and meet high ethical and professional standards.

There are many certifications that planners can get, such as the Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Chartered Financial Consultant (ChFC) designations that require extensive training and testing.

It’s important to know that the advisor to whom you entrust your assets has the experience and a passion for financial planning. Many advisors enter the financial services industry as a second career, and you may want to ask a potential advisor about their current and past experiences in financial planning.

You can also check an advisor’s credentials and complaint history using FINRA’s BrokerCheck or the SEC’s Investment Advisor Search.

3. Do you have a broad ecosystem?

Because financial planning, tax preparation, and legal services are inextricably linked, some advisors act as financial quarterbacks, working with specialists such as accountants or estate attorneys. In other words, they easily share information to help you avoid unnecessary taxes, correctly set up your estate plan, or determine the types and amounts of insurance you need. In addition, they can assist in determining how much to save, how to invest it, how much to take out, and what types of accounts to use for college savings.

4. What’s your specialty?

Ask the potential advisor to describe their typical client. Listen closely to this answer. You want to hear that the advisor works with clients with similar situations to yours or that they work on a team with various subject matter experts.

For example, if you’re preparing for retirement, you want to know that the advisor works with many retirees. The challenges facing retirees are unique. While many advisors help pre-retirees accumulate wealth, someone who specializes in working with retirees will better understand what it takes to ensure you don’t run out of money in retirement.

A business owner will want an advisor who understands their desire to position their business with the appropriate exit strategy. Divorcees, widowers, and multi-generational families have unique needs, too. So does legacy planning.

Ask the advisor about account sizes; if your account is substantially smaller than most clients, you may not get the level of service you expect.

5.  How do you get paid?

Wealth advisors get paid in various ways. No one way is right or wrong, but the advisor should clearly lay it out for you.

The most common are to:

  • Charge an hourly rate (like a lawyer)
  • Assess fees based on the percent of assets managed
  • Receive commissions from insurance products like annuities or mutual funds they sell to you
  • Bill you for each service performed (a la carte)

We believe fee structures should minimize conflicts of interest. For example, receiving a commission may unintentionally bias an advisor towards a specific product, even if it’s not the best fit for you. (This is where having a fiduciary can help.) In contrast, fee-only advisors may charge a fixed fee or one based on an hourly rate or calculated from the percentage of assets under management. So clearly understanding how your planner gets paid can make you more comfortable with their advice and financial philosophy.

To help you assess fees and other aspects of an advisor’s practice, the Securities and Exchange Commission (SEC) mandates that each advisor provides a Client Relationship Summary. This document can help you compare every advisor on an apples-to-apples basis. Here’s a link to ours.   

6. How accessible are you?

Studies have shown that many people feel their financial advisor doesn’t contact them often enough.

So consider how frequently you want to touch base with your financial advisor. You may prefer a high touch—like a weekly newsletter or a quarterly call—or take a no-news-is-good-news approach.

So find out your advisor's typical contact schedule to determine if it meets your needs. For example, touch frequency is fundamental during times of market stress. In the event of an inevitable market decline, do you want your advisor to be proactive in keeping you informed?

The mode of communication is also important. Think about if you prefer phone calls, emails, or a mix of both and if your preferences match the advisor's primary ways of communication.

7. Do I feel comfortable with you?

Your advisor is someone you want to have an open relationship with because they will discuss your finances, family situation, dreams, and goals. So you want to feel a personal connection with your chosen professional.

Rest easy

Like when you go shopping and try different shoes, it’s also a good idea to shop for the best-fit advisor. We recommend that you interview at least two to three different people to assess their style and scope of services. Each advisor has different strengths, so match their best attributes with your needs and objectives. And don’t forget the personality fit!

A night of better sleep may be at the end of this journey! Because people who work with a financial planner are 25% more likely to say they sleep well compared to those who don’t have one.1 So, let's get started towards a more restful life.

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