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Financial Planning

5 Critical Questions to Ask Your Financial Adviser

You’re trusting your financial future with this person, so you must be crystal clear on these key issues.

As an astute investor and reader of Kiplinger’s you’ve no doubt read much about the newly implemented Department of Labor Fiduciary Rule, but are you clear about its impact and what it means to you? Unfortunately, there is no easy explanation as the rules are complex and still need a great deal of clarification. However, one component of the rule is reasonably straightforward: It requires any broker or adviser advising on retirement accounts to act impartially and with the investor’s best interest in mind at all times, a so-called impartial conduct standard. Of course, this too is a bit convoluted and confusing.

In an effort to simplify this, below are five critical questions to ask your adviser or broker and answers that could raise some red flags:

1. Fees & Commissions: How do you earn your fees and commissions?

While this may seem simple and straightforward, the industry has become masterful at hiding compensation. Watch out for unclear answers or an inconsistent compensation arrangement. For instance, if the answer is something along the lines of, “It depends on what strategy or investment is selected,” make sure to probe further. Also, make sure to inquire if there are “lock-up periods” or back-end surrender charges to any strategies or products being recommended.

2. Personalized Advice: Why did you select this portfolio/investment for me?

Any answer that does not clearly include your specific investment objectives is likely an indication that the adviser is thinking about his or her fees and commissions instead of you.

3. Ongoing Portfolio and Planning Advice: How will you help me stay on track?

This question serves two purposes. First, it helps detail what services the adviser commits to providing on an ongoing basis. Second, it should lead into a discussion about specific actions. We know that things will change over time and that the market might throw you a curve ball, that’s why it’s important to understand how the adviser intends to act in various environments. Asking how or what he or she and the firm did for clients during the 2008-09 financial crisis could prove illuminating.

4. Succession Planning and Continuity: Who will be watching my portfolio when you are on vacation or if something were to happen to you?

This goes to the depth of the team around the adviser. While this is a bit more subjective, I much prefer working with a team or an adviser who relies on an investment committee than a single practitioner.

5. Client Profile: What does your existing clientele look like?

Every adviser gravitates to a certain type of client. While there is no “better or worse” client, it is important to work with an adviser who has an expertise and is used to working with someone like you. This will help ensure that the adviser’s services and philosophy are generally aligned with your needs and goals.

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In addition to the questions above, make sure to ask for the adviser’s credentials (which licenses and other accreditations they have), his or her experience level (i.e., how long they have been a financial adviser) and a review of their regulatory history.

Following these steps might not ensure a positive outcome or fruitful relationship, but it might help avoid a poor one.

This column is the fifth in a six-part series on investor education.

  • Column 1 – Understanding your goals
  • Column 2 – Why benchmarking to the S&P 500 is not a good strategy
  • Column 3 – It’s about cash-flow, not returns
  • Column 4 – How much are you paying for your portfolio?
  • Column 5 – 5 critical questions to ask your financial adviser
  • Column 6 – ‘Senior Inflation’ the not so silent retirement killer

About the Author

Oliver Pursche, Investment Adviser Representative

CEO, Bruderman Asset Management

Oliver Pursche is the Chief Market Strategist for Bruderman Asset Management, an SEC-registered investment advisory firm with over $1 billion in assets under management and an additional $400 million under advisement through its affiliated broker dealer, Bruderman Brothers, LLC. Pursche is a recognized authority on global affairs and investment policy, as well as a regular contributor on CNBC, Bloomberg and Fox Business. Additionally, he is a monthly contributing columnist for Forbes and Kiplinger.com, a member of the Harvard Business Review Advisory Council and a monthly participant of the NY Federal Reserve Bank Business Leaders Survey, and the author of "Immigrants: The Economic Force at our Door."

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