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9 Questions to Ask Your Financial Advisor to Start the Year Off Right

The new year is a perfect time to review your finances. From your investments to your loans, it is important to check in, make sure everything is as you expect. January is a perfect time give your finances a good audit.
While you are at it, the start of the year is a great time to check in with your financial advisor, if you have one. Schedule a quick call to get an update on your investments. Ask about your outlook for the next year and get answers to any questions about your investments. While you’re at it, you can ask your advisor these nine questions to ensure your money is on track to meet your financial goals.

Are You a Fiduciary?

A fiduciary is a financial advisor that is required to put your best interests ahead of their own. If you have a financial advisor, it should always be a fiduciary relationship.
A financial advisor that isn’t a fiduciary may put your money in a mutual fund with high fees in exchange for a kickback, sell you products that offer better commissions than investment returns and follow other questionable practices that could cost you big.

How Do You Get Paid?

Your financial advisor doesn’t work for free. Even if you don’t write them a check to pay for their services, they are getting paid for their service. Chances are you are paying them a percentage of your assets under management every year, or a fixed fee for their services.
In most cases, fee-only advisors are the best financial decision. A fee-only advisor means they get paid a fee by you. From that point on your finances are their primary concern. Some advisors get hefty commissions and kickbacks for sending money to specific mutual fund families and this is far from ideal for you.

What Is Your Investment Philosophy?

Is your advisor a bull or a bear? Where do they think the market is going and how are they positioning your funds to take advantage? Do they prefer an actively managed portfolio, a passive portfolio or a hybrid? Do they like individual stocks or ETFs and other funds? These questions help you understand the general direction your money is headed when your advisor invests your funds.
There is no right or wrong answer here but it is important the answers align with your personal investment philosophies. This line of questioning is designed to ensure your dollars are being put where you want them.

What Do You Recommend as My Ideal Asset Allocation?

Your asset allocation is a fancy term for the breakdown of the percent of your portfolio in different asset classes, such as stocks and bonds. Stocks are considered riskier and more volatile, though they tend to offer a better return. Bonds are more stable and lower risk but offer lower returns.
Most investors start with a portfolio heavy on stocks and slowly shift into bonds as they inch closer to retirement. If you have a long time horizon before retirement, stocks may be best as you have years to recover if the market turns sour. As you get closer to retirement, bonds are the best investment as they are less likely to lose value than stocks.

How Are You Helping Me Minimize My Taxes?

Having kids is one way to reduce your tax bill but your investment advisor should have more tricks up their sleeve. Tax loss harvesting is growing in popularity with advances in investment technology. Your advisor may include that, along with other methods of limiting your taxes, in your overall investment plan.
Your portfolio should include tax-advantaged retirement accounts and savings accounts such as an IRA, 401(k), and/or 529. If those letters and numbers are confusing to you, check in with your advisor. That’s what he or she is there for.

What Technologies Do You Use to Manage My Investments?

If your investment advisor is just putting all of your money in a robo-advisor account, you can cut out the middleman and do that yourself. On the flip side, you do want your advisor to be taking advantage of the latest and greatest investment technologies to maximize your investments and minimize your taxes.
There is no right or wrong answer here either. The key is to hear your advisor does have an answer and is confident with platforms and tools they use to manage your hard-earned investment dollars.

Who Is the Custodian of My Assets?

Your investment advisor doesn’t keep your stocks and bonds in a safe at the back of the office. Your account is held by a custodian, a name for the brokerage or investment firm that holds your physical portfolio on their books.
If your advisor is associated with a major investment firm like JP Morgan or Citigroup, you can assume your investments are held with those firms. If you work with an independent or smaller firm advisor, you should ask about where your funds are held and if they are insured by the SIPC.

Am I on Track to Retain My Standard of Living in Retirement?

You are investing for your future and your family’s future. Your advisor should be making sure you’re on track to maintain the same standard of living in retirement, which is not the case for all retirees. In fact, the average family has far less than they need to live a comfortable retirement.
You should be saving at least 10 percent to 15 percent of your gross income for retirement each payday but that might not be enough. Your advisor should be able to tell you, taking into account your current savings, savings rate and expected Social Security payments, what your income will look like in retirement.

What Should I Do to Prepare for My Upcoming Financial Goals?

Do you want to send your kids to college and pay the total expense? Maybe you want to buy a second home in a warm climate for retirement? Whatever your goals, your financial advisor should be working to help you reach them.
Your financial advisor works for you. If your advisor isn’t helping you to track and reach your goals, you are with the wrong advisor. You may even be able to do a better job managing your money yourself.
Whatever you do, make sure your finances are working to help you live your dreams. Don’t give up what is most important to you for financial reasons. You may not be able to afford everything but you can afford nearly any specific financial goal you have. That is what money management is all about.
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1 Comment

  1. I like your suggestion to ask the financial advisor about their investment philosophies to make sure they align with our own personal views. My husband and I want to work with a financial advisor because we want to invest more and diversify our assets. I’m glad I read your article because now I have a better idea of what questions to ask potential advisors.