Lifestyle / Over 50

Ask Your Financial Advisor These Six Questions by Bob Lowry

Bill Storie and Robin Trimingham are the co-founders of The Olderhood Group – an online retirement learning environment with over 70,000 global followers. In 2013 they launched a retirement planning blog which focuses on the issues related to the transition from the workplace to a... Read More

Ask Your Financial Advisor These Six Questions by Bob Lowry

Not everyone agrees that a financial advisor is necessary. Some of us are quite good at fiscal discipline, understand how investments work, and have the experience and temperament to handle our financial future on our own.

For the rest of us (me!), having someone who can help us minimize mistakes and help us reach our goals is prudent. Just like we shouldn't self-diagnose ourselves when a funny-looking skin growth appears somewhere on our body, our financial health benefits from guidance. 

In thinking about this post, I figured there are a probably two dozen questions or concerns I could come up with if I were hunting for a new financial advisor (which I am not).  But, that is a bit overwhelming. You might look at such an extensive list and assume that finding the right person is too difficult. 

So, I have trimmed the list of key questions to six. The answer to each might lead you to another question or two, and that is good. Though not on the list, the most important question is one you have to ask yourself: are you willing to put in the time and effort to make this selection a good one?

Like most of what I write on Satisfying Retirement, I know that your input and followup are what makes these posts helpful to all of us. My thoughts might suggest other questions or concerns that we need to consider. Your experience may raise a red flag that everyone needs to watch out for.  Since I make it quite clear I am not a financial wiz, take a look at my list and then add your ideas.
 

Important Questions to Ask a Financial Advisor

 1) Do you understand and accept my tolerance for risk?

The only time I have had real issues with someone advising me is when he continued to bring me investment options that were too risky for me. Yes, I probably left a lot of growth on the table, but I slept better at night. Be sure the person you are talking to understands where you are on the scale from super-conservative to anything goes. Listen to what he or she has to say, but you are the ultimate judge.

2) How often do you suggest we look at rebalancing my portfolio?

Some advisors will suggest quarterly, others yearly, and others after a major stock market shift. My experience says the answer is, "when needed." To me, the worst time would be after a major bull or bear shift in the market. As I age, my investment horizon changes, meaning my investment balances between stocks, mutual funds, bonds, and cash does shift over time. If the person you are talking with suggests a frequent adjustment, I'd question if he isn't overly motivated by commissions. 

3) Where do you expect the market to go in the next year? Two years? 

This is sort of a trick question. If her answer doesn't  start with admitting no one really knows, walk away. Someone who understands their stuff should have general feedback on economic and political trends that will affect investments. But, if projections are too specific, you are with a salesman, not an advisor.

4) Will you develop a written financial plan for me?

THis is something basic that any decent financial advisor should do for you, in fact, should offer to prepare one before you have to ask. Having the approach you have discussed in writing allows you to feel committed to the plan. You have a document that helps keep you, and the advisor, focused on your goals. Of course, that plan will be updated as circumstances change.

5) How much contact should I expect from you? What is the best way for me to reach you?

I believe this is an important point to pin down early on. You should tell your advisor how often and under what circumstances you expect him or her to be in touch with you. Realize that a good advisor will be busy and can't call you or email constantly. But, if you need contact once every few weeks, once every few months, whatever meets yours needs, ask upfront. Discuss the options: phone calls, emails, or mailed updates on your portfolio. 

6) Do you work alone on my account or are others involved? Do they make buying and selling decisions?

Some larger firms have a "front man," the advisor who meets with you to handle all the steps above and regular contact. But, the actual management of your account could be handled by others in the office. While that isn't necessarily a bad thing, it is important that you are aware of such a setup. At the very least, insist that the other people know your feelings about risk and frequency of contact. Insist that the person you met with is aware of everything that might affect you so he or she can brief you as required.

By Bob Lowry