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5 Questions You Need to Ask Your Financial Planner

Updated: Aug 16, 2023

Whether you currently have a financial advisor or are just beginning the process of looking, these 5 questions can help separate out the good advisors from the bad.

How are you paid?

There are two different ways advisors get paid, fee or commission. But what is the difference? Fees are transparent pricing that are the same no matter what investment is chosen. This means the planner can go and pick the best option out there, eliminating the conflict of interest that comes along with many commission sales. Commissions are much different than fees, commissions can range from 1% to more than 7% upfront for initial investments, along with ongoing commissions that continue indefinitely. Worse advisors who are paid on commission do not need to disclose how much they are getting paid or what commission they are earning. So, how would you know if they are recommending an investment due to it’s higher commission or because it's better for you? With fees, you always know exactly how much and when your advisor gets paid. With commissions you rarely know when or how much an advisor is paid. In conclusion, choosing an advisor who is compensated through fees reduces many of the conflicts of interest that show up with commissions, and ensures transparency so that you know exactly what you are paying for their advice.

Do you follow a fiduciary standard?

Fiduciaries have to act in clients best interest. They have to pick the best options, give the best advice, and avoid conflicts of interest to clients. As a client you always want the fiduciary standard. It's what you likely expect from all advisors, but some financial planners do not have to act as a fiduciary. These financial planners only have to follow a “suitability” standard. Suitability means the recommendations just need to “fit” the situation. They do not have to be the best or even very good. They just have to be suitable for the situation. If you want an advisor to give advice in your best interest, you always want your advisor to follow the fiduciary standard.

What are your qualifications?

When talking to a potential financial advisor you need to understand what their qualifications are to make sure you are choosing the right advisor. First off, you need to know what experience your financial planner has. How long have they been in the industry? Do they have the experience to guide you through the many ups and downs of the market?

But older isn’t always better either. You want an advisor who will still be there when you need them 10+ years down the road. And the industry has changed, and some advisors have not adapted to the research, new technology, or more diverse investment solutions.

Secondly, you need to know what their Credentials and Education are. There are over 100+ designations in the industry, and most of them mean little to nothing. Some credentials allow advisors to simply pay a fee to get a few initials behind their names. However, there are a few great designations that allow some advisors to stand above the rest.

  • Certified Financial Planner (CFP) is the gold standard in the industry. It tells you the planner has completed extensive education, passed a grueling exam, have 3 years or more of hands-on experience, and have high ethical standards.

  • Certified Private Wealth Advisor (CPWA) has in-depth knowledge of financial planning topics that impact higher net worth individuals on a daily basis. This also includes extensive education and a tough exam.

  • Chartered Financial Analyst (CFA) requires 3 years of education and 3 separate exams with escalating difficulty. It shows an in-depth investing and financial analysis background and knowledge.

What does our relationship look like?

Having a good relationship with your financial planner is critical when they are handling your financial situation. Some of the specifics to understand:

  • How often do we meet?

  • Do you offer in person and virtual?

  • How often do I receive updates on my plan and investments?

These are all important questions to ask before committing to an advisor.

What does “financial planning” services actually consist of for your firm?

Knowing and understanding what your advisor’s firm does for financial planning is a must when finding an advisor. Many advisors say they do “financial planning” but really don’t. Here are some good questions and answers to know when looking for one.

  • Do you provide tax planning and preparation services? Most firms avoid tax advice altogether, or limit it to very basic questions. Make sure your advisor has the expertise to dive head first into taxes, running tax projections for future years, mapping out long-term tax mitigation strategies and is always looking for ways to help you minimize taxes.

  • Do you evaluate my estate documents? Having proper estate documents is the bedrock of a good financial plan. Making sure your advisor reviews your will, financial and health power of attorneys, health care directives, and trust documents are very important.

  • Do you advise on Social Security strategies? Picking the correct Social Security strategy can mean an additional $100,000+ in benefits to you throughout retirement. Make sure your advisor knows the specifics of claiming strategies and will work to implement the best one for you.

These five questions will give you a clearer picture into your potential new advisor, and help you begin to filter out the good from the bad. If you have any further questions, we are happy to help. Please contact us here or visit our website for more information.


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