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5 BIG questions to ask your financial adviser

Posted at 7:57 AM, Sep 07, 2018
and last updated 2018-09-07 12:50:56-04


5 Important Questions to Ask Your Financial Adviser
1.    Are you a fiduciary?
This question might not occur to everyone, but it can be helpful to understand that in the investment world, there are two standards-the suitability standard and the fiduciary standard.

Financial professionals who operate under the suitability standard offer you products for sale from a range that is available from the company or

companies they represent. They are paid commissions calculated as a percentage of the amount you pay to purchase the product. By law, the guidance they give and the products they sell you must be suitable for your needs, objectives and unique circumstances. Financial professionals operating under this standard would include insurance agents (producers), as well as brokers (registered representatives).

A financial professional operating under the fiduciary standard must present, by law, the best advice he or she can give, taking into consideration the needs, wants and objectives of the individual consumer. The client's needs and personal objectives must come first. Typically, fiduciaries are paid a recurring fee calculated as a percentage of the market-based assets for which he or she is providing advisory services (not commissions). Financial professionals operating under this standard would include investment adviser representatives.

2.    How do you get paid for the services you provide?
This question is important because it's not just about the adviser's bottom line. It also affects your bottom line. Typically, there are three ways advisers make money: They charge the client a flat fee, perhaps based on an hourly rate for their advice; they charge the client a fee that is a set percentage of the assets under their management; or they make a commission
for selling insurance products, mutual funds or other investments. When a fee is based on the percentage of the assets, not only does that eliminate the conflict of interest you can have with commissions, but it also ties the adviser's success to the client's success. Think of it this way: A broker who sells a financial product for a commission is unaffected by the losses or gains. But a fiduciary whose fee is determined by the value of the assets has an incentive to make sure the plan is in line with the client's financial goals.

3.    What licenses or credentials do you have?
Do they have only a securities license? Just an insurance license? Can they provide services in both? You can do a little online research on a financial professional yourself. For example, has a free search tool called Broker Check. Just type in a name to find background information about a financial professional. The Securities and Exchange Commission has a similar search tool called Investment Adviser Public Disclosure. You also can visit your state's department of insurance website and verify whether an insurance producer is licensed.

4.    Can you show me a sample financial strategy or plan?
Advisers should have a well-defined process they use when making recommendations. That doesn't mean they should have a cookie-cutter plan that they give out to everyone-far from it. Every client's goals and resources are different, so there should be a process for determining what's best for your situation. They should be able to show you what that process is or provide you a sample plan that demonstrates how they develop a recommendation to fit your situation.

5.    Have your ever been publicly disciplined for illegal or unethical activities, or filed for bankruptcy?
It's amazing how many people who claim to be financial advisers can't handle their own money. In fact, it's downright scary seeing them give advice when their track records show they can't follow that

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