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MRiles:  Essential Questions for a Financial Advisor

By Wendy Connett  Updated Jun 25, 2019

Choosing the right financial advisor is, in essence, taking the time to invest in what should be a long-term professional relationship that keeps your financial health and future on the right track. The search should go well beyond referrals from colleagues, friends and family and an emphasis on investment performance.

In fact, investors should dedicate as much effort as they would to finding a medical professional with whom they trust their physical well-being. The right financial advisor will provide the professional help needed to reach long and short-term financial goals.

The following are questions that should be asked when choosing a qualified financial advisor. If they can’t or avoid answering them keep looking.

For advisors, being able to answer these questions may be the difference between whether or not a potential client decides to choose you over a competitor.

What are Your Professional Qualifications?

Anyone can hand out business cards maintaining they are a financial advisor so it is important to ask about qualifications and credentials.  

While there are myriad professional designations, top advisors typically have credentials such as certified financial planner (CFP), chartered financial analyst (CFA) and chartered financial consultant (ChFC).

Advisors with CFP designations, for example, are regulated, licensed and take mandatory courses related to financial planning, such as estate planning and retirement planning among others.

Some advisors are also certified public accountants (CPAs). For those who also need tax advice and preparation choosing a financial planner who also has a CPA designation may make sense.

Financial advisors who sell stocks, bonds, mutual funds or insurance have licenses including the Series 6, Series 7, or Series 63. To obtain these licenses they must take exams administered by the Financial Industry Regulatory Authority.

Are You an RIA?

Some financial advisors are registered investment advisors (RIAs), which means they are held to high fiduciary standards put in place to protect investors. The fiduciary standard requires that advisors unconditionally put their clients' best interest first at all times no matter what. 

Advisors who aren’t fiduciaries adhere to a less stringent standard called the suitability standard. This means that any investments they offer must be suitable for a client although it may not be in their best interest.

True to their name, RIAs are also required to register with the Securities and Exchange Commission or the states in which they conduct business. (For more, see: Becoming a Registered Investment Advisor.)

How Do You Charge for Your Services?

Most RIAs charge clients a percentage of assets under management or a flat fee or hourly rate. Advisors who are fee-only do not earn commissions on investment products they sell to clients. On average they charge no more than 2% of assets under management. That percentage often declines the more assets you have for them to manage.

Advisors who work for full-service firms, such as big broker-dealers like Merrill Lynch and Morgan Stanley, typically charge commissions on investment products such as stocks, bonds, mutual funds, exchange-traded funds and annuities that are bought and sold. In theory, advisors who charge commissions could be less objective when recommending investments. 

Who Are Your Typical Clients?

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