6 Important Questions to Ask Your Financial Advisor

Questions to ask financial advisor

You may have a financial advisor, but don’t really know if he’s doing a good job for you or not.

I used to have a financial advisor and we would talk about my goals and what I was planning on purchasing in the future and when I wanted to retire.

Those were all great questions, but then when he would try to explain what he was going to invest my money in, I got confused and just trusted what he was doing was best for me.

After I started doing my own research and looking at other options, I no longer felt comfortable investing with him.

I pulled all my money out and put it in Vanguard, which reduced my fees drastically and made me feel a lot better about my investments.

So if you just want to make sure you’re getting the best bang for your buck and that your financial advisor has your best interest at heart, here’s a few things to discuss with him.

#1. Ask how many funds you’re invested in.

You don’t need a ton of funds to get a good return and lot of times, advisors will put you in a lot of funds to make it seem like they are really helping you out when, sadly, that’s not the case.

One, two or three funds will get you what you need.

Each mutual fund has an expense ratio associated with it. Some are higher (1% and over) and some are lower (.05% is fantastic).

The more funds you’re invested in, the more you’re paying in fees that you may not need to be paying.

Some funds may be overlapping. This means one fund could include a higher percentage of Apple, Amazon, Facebook stocks, etc and another fund could also include the same.

You don’t need that overlapping, which leads us to the next question.

#2. When you figure out how many funds you’re invested in, ask to see what’s included in each fund.

Some funds could include 100’s or 1,000’s of stocks. You don’t need to analyze each stock inside the fund, but at least look at the top 10.

If there’s overlapping (the top 10 holdings  are similar or the same as what’s in your other funds), consider ditching one of the funds and allocating that money to the other fund.

You don’t need to be invested in 2 or 3 different funds, when what’s inside the fund is very similar.

#3. Ask to see what the expense ratio is for each fund.

Like I mentioned in question #1, each fund has an expense ratio (these are fees to manage the fund).

Try to keep the expense ratios as low as possible, this is where you have the potential to lose a ton of money.

It may seem like a small expense ratio, but paying .85% can take away 21% of your retirement fund (that’s a lot!!).

If you’re trying to decide between two different funds, go with the lower expense ratio.

#4. Ask what their fees are.

If you aren’t already sure what your advisor is charging you, ask.

Some advisors charge a percentage of the money you have invested with them. I’d stay away from these advisors.

Just like with expense ratios, advisor fees will eat away at your hard earned money.

It’s better to go with a flat fee.

Also, once you pay them, are you paying an upfront fee to invest in select funds or a fee when selling those funds?

Ask about all fees involved.

#5. Ask how they are paid.

Does your financial advisor work on commission? Do they get bonuses for certain things? Do they receive payments from funds or investment companies they recommend?

It’s just like a jewelry salesman. Some salesmen get commission so they’ll try to sell you the highest priced product instead of what you actually want/need.

How they’re paid may influence what they recommend to you, so it’s better to know that upfront.

#6. Ask what they are invested in and their investment philosophy.

Are they practicing what they preach? If not, why not?

Do they have a sound investment philosophy or are they not really sure if they have one.

Will they sell your investments if the stock market starts to drop or do they have a process in place to make sure emotions aren’t taking over?

They should be able to explain their investment philosophy very simply to you.

Recap

Knowing who you’re investing with and how they will be handling your money is very important – no one will care more about your money than you. Make sure, if you are using an advisor, that you know all the details so you can make the most of your hard earned money.

I started investing in 2002 and have learned a lot since then. I’ve been able to help others learn along the way.

If you feel like venturing off and doing investing on your own, a great place to start is with my Investing Made Simple course.

What other questions should we ask financial advisors (I know I didn’t get them all)? Share in the comments below.

2 Comments

  • lucy meowman

    Reply Reply July 17, 2017

    Great list and all good points, Not that it should matter, but I also like to ask what they did before for a living and what they studied in college.

    • Tiffany Thomas

      Reply Reply July 18, 2017

      Thanks Lucy! I like the idea of getting a good feel for their background. 🙂

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