Three Things to Ask Your Financial Advisor Right Now

Financial Advisor Questions

There are a lot of people who refer to themselves as financial professionals and it’s important for investors to understand which type of professional they are working with, how they are being compensated, and what they are doing for the money.

1. What’s the plan for 2019?

When it comes to managing your money, there should always be a strategy in place. If you don’t have a strategy with some goals, how can you know if it’s working or not. Unfortunately, many advisors sell packaged products with asset allocations that may rebalance but don’t adjust to market conditions. For example, over the last year, we have been in a rising interest rate environment, saw signs of inflation earlier in the year, and the market dropped in the last quarter by almost 20%.

A strategy that adapts to the markets over time might include a shift to lower duration bonds to combat rising rates. Inflation protected securities that capitalize on higher prices and economic growth, and some activity in your account when markets are down. When markets drop like this, there is no better time to upgrade your holdings and reposition for income, especially for people near or already in retirement.

That doesn’t mean you have to change all of your holdings, but if your advisor’s strategy for your money is the same as it was in 2018, 2017, and so on, then you are not paying for advice, you’re paying for a product. (Please note: I don’t think you should have to ask what the strategy is since they should be telling you in the first place).

2. How Much Am I Paying You?

This is an important question to ask your advisor, and don’t let them skirt around it. Some professionals will say something like, “You don’t pay me anything, the companies I work with pay me.” Okay, great, how much money are they paying you for my business. How much do you get up front and ongoing?

The reality is, we are professionals and make a living doing this, so there are costs. But that being said, we should be able to clearly articulate any and all costs. Therefore, take extra precaution to any professional who appears uncomfortable or is unable to answer the cost question as they are likely peddling high cost products that may impact your long-term returns.

The cost question should end at how much they are making, but also include discussions for the products and services they are offering. Be on the lookout for index annuities with high administration fees in the subaccounts, mutual funds with the letters A, B, or C at the end, and always ask how much trades cost. Believe it or not, despite the fact that people can get trades for $7-$10 on many platforms, some advisors are still charging $50-$100 for a trade.

3. What Do I Get For The Money?

Whether you paid your advisor a flat-fee up front, they receive commissions, or there is an Assets Under Management (AUM) charge, you should know what you get for the money and feel good about it. Many investors don’t ask this question or consider how important it is when markets are hitting new highs and your account value is moving up.

However, when markets reverse course and turn in a negative return for the year, their thinking changes. People begin to wonder why their advisor is still making money, but they aren’t. Obviously, if they are offering other services, there is more perceived value.

By having a plan going forward, knowing how much it’s going to cost you, and what you get for the money, investors can better weigh their relationship with their advisor and the benefit it provides to their long-term financial health.

Source: Forbes
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