The 5 Best Questions To Ask Your Financial Advisor In 2021

There are over 300,000 financial advisors in the U.S. with no standard requirement to earn the title(s): financial advisor, financial planner, wealth manager, etc. How would you feel about going to a doctor who was never sworn under the hippocratic oath to preserve and protect life? If that idea makes you uncomfortable, this blog is written for you. Learn to ask these 5 questions in 2021 to make sure you find an advisor that is right for you.

1) Are you a full time fiduciary?

For those of you who are wondering what fiduciary means, it is basically the financial planning equivalent of a doctor’s hippocratic oath. A planner who is sworn under the fiduciary oath is required to put your interest above theirs, to eliminate conflicts of interest, and to assure you a better planning experience. However, there’s a catch here. Financial Planners can be fiduciaries, but not act as a fiduciary 100% of the time.

Being a full time fiduciary prohibits the planner from receiving compensation from anyone other than you. Unfortunately, most advisors can not make you this promise. Make sure you find a full time fiduciary to be assured that your advisors are making you money, not making money off of you.

2) What experience do you have to navigate the world of financial planning?

How much does professional certification mean to you? If you want the best of the best in the financial planning industry, you need to find a Certified Financial Planner (CFP®). Only 25% of financial advisors in 2021 hold the CFP® designation (Source: CFP.net), and for good reason. CFP® Board requirements are much higher than simply passing a securities exam. A college degree is also a requirement for CFP® Professionals. At Shore Financial Planning, I have 25+ years of experience in the finance and accounting industries. Read more into my blog for details on how to find the most certified advisor you can by clicking here.

3) What are my costs in this, how are you being paid, and where can I see this all on paper?

Just working with a fiduciary is not enough to ensure you comprehend all of your costs when working with an advisor. Aside from making sure you find a fee-only advisor with an up front rate, you need to make sure your advisor can explain the type of fees you could be paying. There are three kinds of major fees:

Advice Fees: These fees come at a flat rate and can be in the form of hourly fees, one-time project fees, or a percentage of your investments.

Transaction Fees: These fees can be charged by the custodian when an advisor buys or sells your investments, they can range from $0 to $50 per trade.

Expense Ratios: This fee is the least known. It is charged by a mutual fund as a percentage of your assets to ensure maintenance on the fund. These can range from 0-3%. If you invest $100,000 in a fund with a 2% expense ratio, by the end of that year you will have lost at least $2,000 to maintenance.

Notice how the only fee going to the advisor is the advice fee.

4) What are ALL of the services you provide?

One of the most common misconceptions about financial planning is that people believe there is a cookie cutter method for handling your financial life. There’s not. Financial planning encompasses 6 core areas:

– Tax planning

– Retirement income

– Estate planning

– Investment management

– Insurance optimization

– Charitable giving

Make sure you can find an advisor that tailors his / her services to your needs. Don’t work around an advisor and pay for extra services you don’t need.

5) Will I know where my money is at all times and how safe is it?

While this last one might seem unimportant compared to the previous four, this is often one of the most overlooked things when it comes to considering an advisor.

Please confirm that your financial advisor is using a major third-party custodian to hold your investment or retirement accounts. Well-known custodians include Fidelity, TD Ameritrade, and Vanguard. When your advisor works with a trustworthy third-party custodian, they have limited authority with your money and can ensure you are paying the lowest possible amounts in expense ratios. Every major third-party custodian allows you to view your accounts and holdings online and they also provide investors with insurance.