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Financial Planning

8 Questions to Ask Before Making Any Investment

When meeting with a financial adviser, it can be a little intimidating, but don't let any fear of looking uninformed keep you from asking some important questions.

Many people who ask me about investments or about wanting to set up an appointment often preface it by saying, "I'm sorry, this is probably a stupid question, but…"

I started to wonder why people often say this and asked myself if I ever do. For me, it's usually when I'm talking to someone, such as a doctor or a lawyer, about a subject I don't know a lot about or that intimidates me. I think most people are afraid to ask questions about their investments for fear of sounding bad or admitting in some way that they don't have all of their "stuff together."

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I can assure you, there truly are no stupid questions when it comes to investments. Every question leads to more knowledge, and that's a good thing.

First, let's start with questions about the investment itself:

  1. Is this product registered with the SEC or my state agency?
  2. Does this investment match my investment goals? Why do you feel it is suitable for me?
  3. How does this investment make money? Dividends? Interest? Capital gains?
  4. What are the total fees to purchase it? Not just commissions but any underlying fees as well.
  5. Is this investment liquid? Are there any fees associated with accessing my money?
  6. Can you tell me about the management team? Many companies tout past performance, but that may have come from a team that isn't there anymore.
  7. What is a reasonable return to expect for this investment? How has it performed over the long run? Many managers who highlight performance do so after a great year. If you are a long-term investor, that might not be meaningful to you.
  8. What are the risks associated with this investment? What would cause it to lose money?

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Next is a list of questions you should ask about the adviser:

  1. How long have you been in business?
  2. What education or credentialing do you have? The credentials should match the advice you're looking for. For example, if you need planning advice, the advisor should be a Certified Financial Planner TM professional. If you want investment advice, then they should hold designations such as Certified Investment Management Analyst® (CIMA®), or Chartered Financial Analyst (CFA®).
  3. What is your investment philosophy?
  4. How do you get paid? Do you get paid more if I buy this vs. that?
  5. How often should we meet to discuss my investments?
  6. If I leave your firm, what are the fees if any? Most custodians charge a fee for outgoing transfers and/or closed accounts.

These questions are not inclusive, and you may have more depending on your situation. It is also important to ask a question more than once if you don't understand the answer the first time or to ask your adviser to rephrase the answer in a different way.

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Understanding your investments and doing your due diligence on the adviser you’re working with is similar to researching a physician and understanding your prescribed medications. You wouldn’t leave your health to chance, and the same type of care should be taken with your money.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney or tax adviser with regard to your individual situation.

About the Author

T. Eric Reich, CIMA®, CFP®, CLU®, ChFC®

President and Founder, Reich Asset Management, LLC

T. Eric Reich, President of Reich Asset Management, LLC, is a Certified Financial Planner™ professional, holds his Certified Investment Management Analyst certification, and holds Chartered Life Underwriter® and Chartered Financial Consultant® designations.

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