Hiring a Financial Adviser? Start the Conversation Simply with These Top 3 Questions

To get the right help, you need to ask the right questions. Here are three questions that will serve you well.

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No matter where you are in your career, the prospect of working with a financial adviser may bring on a flurry of finance-related questions.

For baby boomers, questions may be centered on “How much do I need to retire?” and “When can I retire?”

For Gen Xers to Millennials (and Centennials), questions may be focused on “Is it better to pay off my home loan quickly or save for our children’s college?” to “How can I pay off college debt while saving for a down payment on a house?”

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About 44% of 5,000 Americans polled this spring by GOBankingRates, a personal finance website, said they wished they’d learned more about budgeting and investing while they were in school.

As a Certified Financial Planner™ with 16 years of experience, I know that financial education and building wealth are part of a process. As such, I always encourage clients to ask questions: Any and all questions are good, because part of our goal is to educate and guide them about their financial journeys.

Of all the questions new clients ask, here are the three most important three questions they should ask — especially clients who may have never worked with a financial planner before.

No. 1: What is a fiduciary, and are you a fiduciary?

In general terms, being a fiduciary entails actively working in a client’s best interest, even if it’s detrimental to the adviser’s firm. This is where hiring an independent financial advisory firm that is not tied to any brand insurance or investment products can be beneficial.

One way I explain a fiduciary role to clients is this, if you go to a car dealer, you expect that dealer to sell you one of her dealership’s cars. This would be similar to the ‘suitability standard,’ which means a product or service may be suitable for you. Contrast that with the fiduciary standard. What if the salesperson knew that another car dealer had the perfect car for you? The exact features you needed, a better price, plus higher gas mileage. If she was a fiduciary, she would send you to the other dealership, because that would be the best car and deal for you, even if it meant she wouldn’t get the commission.

Here’s a simple question to determine whether an adviser applies a suitability, versus a fiduciary, standard in their investment or product purchase recommendations: Ask your financial adviser if he or she will sell investments, insurance or other financial products from any company, or if there is a list you are required to buy from.

An independent financial advisory firm doesn’t have a mandatory list of products that must be sold. Independent financial advisers can shop the market or search the neighborhood for the best product that fits your specific objectives. Also, don’t buy into investments based on a friend or family member’s recommendation only; your investment goals are likely different from theirs.

No. 2: What should my objectives be in working with you as my financial adviser?

Investors have different goals at different stages in their work lives. Usually the top two or three client objectives depend on what stage in life a client is moving toward.

  • Early on in a career, clients may be focused on debt elimination, cash flow, saving for a down payment on a house, saving for retirement, and/or planning for the next three to five years.
  • In the mid-stages of a career, clients are usually concerned with family obligations, home improvement and possibly college planning. It can be a lot of work to balance all of your obligations while trying to maintain a career trajectory and friendships.
  • In the later stages of a career, the bigger questions are centered on retirement itself. When can you retire and do you have enough saved?

Your adviser should go through the mechanics of how retirement works emotionally as well as talk about the earliest you can stop working and still be financially secure.

No. 3: How is your firm compensated by its clients, and how often should we meet?

Asking how a firm is paid is a simple, yet effective question. Don’t be shy, just go ahead and ask: “How much do I pay you?” or “How are you compensated?”

Financial advisory firms can be compensated in a couple of ways: Fees can be charged as a comprehensive asset-under-management fee ranging from 1% to 2% per year to actively manage an investment portfolio. Usually that model includes financial planning. Clients can also pay on a commission-only basis for the sale of investment or insurance products, and some financial advisers charge an hourly fee.

Tied into the fees will be an expectation of how often you will meet with your adviser. Typically, the complexity and urgency of a client’s needs and objectives will likely determine the frequency. If the financial adviser doesn’t recommend a certain number of times to meet per year, the client should ask what would be most appropriate for them. People at all stages of building wealth can benefit from having a conversation with a professional financial planner to make sure you get on the right financial path.

No matter how much money you have, clients should talk to a certified financial planner at an independent firm just to begin setting a household budget and establishing investment and tax planning; debt management; education planning; retirement planning; estate planning; and insurance planning.

At the end of the day, remember that if you feel your financial adviser is not listening to you or is creating generic solutions to your specific problems, think about changing advisers. If an adviser is constantly trying to sell you one product or guarantees you a big return on an investment, those can be red flags.

Hiring a financial adviser is the beginning of an ongoing and personal conversation that is the foundation of a trusted relationship that grows over time.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Erin Savage-Weaver, CFP®
Certified Financial Planner™ Professional, Kehoe Financial Advisors

Erin Savage-Weaver is a CERTIFIED FINANCIAL PLANNER™ professional with Kehoe Financial Advisors in Cincinnati, Ohio. Founded in 1982, Kehoe helps individuals and small businesses in financial planning and investment, estate, insurance and retirement planning. She's a member of the Alumni Associations of Tau Beta Sigma and alumna of the UC Marching Band. She volunteers with the Junior League of Cincinnati and her son's sports organizations and lives with her husband, son and a menagerie of pets.