5 Questions to Ask Your Financial Planner

When you meet with your Financial Planner for the first time, there are going to be a lot of questions thrown around. They might ask you about how you are currently managing your finances, and they might want to know about your current insurance coverage. These are all normal things that you’d expect from a financial planner, but do you know what kinds of questions you should be asking them? This road goes both ways. You should be asking your adviser some tough questions, just like they are asking you. These are the top 5 questions you should be prepared to ask your financial professional.

#1 How are you compensated?

This is probably the most important information to know. There are 3 types of compensation for financial planners.
  • Fee only: They are paid hourly, monthly, quarterly or possibly just a one time fee, depending on the type of work they are doing for you. They are not paid for any product that you purchase, or based on your acceptance or refusal of any financial plan. It won’t make any difference to them whether or not you accept their recommendations, because they will be paid the same amount regardless.
  • Commission: This type of adviser is paid based on what they can sell you. Usually you’ll be sold insurance, annuities, or mutual funds, and you’ll pay a commission to the adviser for them to have sold you that product. There is a distinct possibility of a conflict of interest here, the adviser might just be trying to sell you something to benefit himself, or he might genuinely believe that his recommendation is best for you. This isn’t a reason to walk away, but be careful about any conflicts that come up with the investment recommendations.
  • Mixed: This one isn’t hard, it’s just a combination of the two models above. Some advisers will charge a set rate such as an hourly fee, and then also sell you products and charge commissions for the sale. There may be some issue with conflicts of interest here, but this is also an extremely common compensation model.

This might be a difficult question to bring up when you first meet, but it is incredibly important. A financial professional shouldn’t care if the first question you ask him is about his compensation arrangement. When you ask, there should be no hesitation whatsoever, if you suspect that he or she is being less than truthful about how they are paid, then ask to see the Form ADV. This is a required document for all licensed advisers to disclose their compensation arrangement. They must list their fees under section 5 and title it “Fees and Compensation Arrangements.” If they can’t provide one to you, leave. They shouldn’t be in business if they can’t tell you how they are paid, and you shouldn’t contract for services if you aren’t aware of what it will cost.

#2 What licenses or certifications do you have?
There are dozens certifications available to financial professionals. Some of them take years of hard work, and others… don’t. Here are a few, but there are many more than these out there as well. You can find a much longer list from FINRA here.
  • CFP: This is considered the grand-daddy of certifications within the financial planning world. The Certified Financial Planner requires college level education, and testing, as well as continuing education requirements. Many people believe that you must be a CFP to give financial advice, but that is simply not true.
  • Series 7: This is a FINRA license that allows the holder to sell securities to the general public. These people are usually employed by brokers, and can offer to sell you stocks, bonds, or other securities. That question about compensation will be particularly important for these individuals.
  • Series 65: This is the investment advisers license. This allows the holder to manage a portfolio for you, or to give you advice on your investments. Often the business associated with a Series 65 is called a “Registered Investment Adviser” or RIA, and the person who works for them is the “Investment Adviser Representative.”

There are other licenses and certifications that exist, but these are the most common for financial professionals. Another less common certification for financial planners is a CFA designation. You’ll usually see these guys working for large investment banks, and often aren’t meeting with individuals.

Talk with your Financial Planner


#3 Are you a Fiduciary?
One of the most important things you can ask your financial adviser is “Whose interests are you looking out for?” That’s what being a fiduciary is all about. Some financial advisers aren’t fiduciaries, and that means that they can recommend investments to you even if they aren’t the best choice. A fiduciary is required to know all that you do, and recommend investments based on what is the best option for you. They need to act exactly like you would when they manage your money. Not being a fiduciary doesn’t mean you should run away screaming, but make sure that what they recommend actually makes sense to you. If you have to, ask them to explain it thoroughly before making a decision. And don’t just take what they say as gospel, it needs to make sense to you before you buy it.

#4 Have you had any complaints against you? Prove it. 
Some advisers aren’t as great as they say they are. If you ask them point-blank about any complaints that they’ve had, they should respond truthfully. This might be a tough subject to bring up at an initial meeting, so luckily, FINRA makes it easy and lets you look up your adviser online. Go to BrokerCheck.org and search for the company or name of the adviser, and you should be able to find their history. This will include not just any complaints, but also what licenses they have, what states they are registered to do business in, and any other pertinent information.
#5 Can I bring someone with me to our meeting?
This isn’t just about bringing your BFF to meet this person. It may be wise to bring an accountant, attorney, or another trusted professional with you to help vet this adviser before you make any agreements. Any financial adviser who is worth their salt should be completely willing to talk to you in the company of your other professional advisers. If the adviser doesn’t want you to bring another professional along, then that throws up some red flags. Of course, make sure that the person you bring is someone who can help you determine if the adviser has the professional experience and knowledge they need to help you, and make sure they are someone you are comfortable talking about your personal finances to.
These are the top 5 questions we think you should ask. Of course there may be other questions that you want to know about. If something is of particular importance to you, bring that up as well. Make sure that you never sign on with someone without feeling 100% comfortable about it. They should be willing to explain all of this and more to you in detail, and work with you one on one until you are comfortable enough to make a decision.

Leave a Reply