5 Important Questions to Ask Your Financial Adviser

The answers to these questions can help make sure you're getting smart guidance from the right person.

Most people don't have a lot of room for error when it comes to where and how they invest their money, especially as they grow older. Even people who do have a little cushion have no interest in needlessly losing money.

That's why when you go in search of investment advice you want to make certain you're getting the right guidance from the right person. And frankly, that's not always easy to determine.

You can better weigh a financial professional's recommendations if you find out a little bit about them before you start acting on their advice.

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With that in mind, here are five important questions you should ask a financial adviser:

1. Are you a fiduciary?

This question might not occur to everyone, but it can be helpful to understand that in the investment world, there are two standards—the suitability standard and the fiduciary standard.

Financial professionals who operate under the suitability standard offer you products for sale from a range that is available from the company or companies they represent. They are paid commissions calculated as a percentage of the amount you pay to purchase the product. By law, the guidance they give and the products they sell you must be suitable for your needs, objectives and unique circumstances. Financial professionals operating under this standard would include insurance agents (producers), as well as brokers (registered representatives).

A financial professional operating under the fiduciary standard must present, by law, the best advice he or she can give, taking into consideration the needs, wants and objectives of the individual consumer. The client's needs and personal objectives must come first. Typically, fiduciaries are paid a recurring fee calculated as a percentage of the market-based assets for which he or she is providing advisory services (not commissions). Financial professionals operating under this standard would include investment adviser representatives.

2. How do you get paid for the services you provide?

This question is important because it's not just about the adviser's bottom line. It also affects your bottom line. Typically, there are three ways advisers make money: They charge the client a flat fee, perhaps based on an hourly rate for their advice; they charge the client a fee that is a set percentage of the assets under their management; or they make a commission for selling insurance products, mutual funds or other investments. When a fee is based on the percentage of the assets, not only does that eliminate the conflict of interest you can have with commissions, but it also ties the adviser's success to the client's success. Think of it this way: A broker who sells a financial product for a commission is unaffected by the losses or gains. But a fiduciary whose fee is determined by the value of the assets has an incentive to make sure the plan is in line with the client's financial goals.

3. What licenses or credentials do you have?

Do they have only a securities license? Just an insurance license? Can they provide services in both? You can do a little online research on a financial professional yourself. For example, FINRA.org has a free search tool called Broker Check (opens in new tab). Just type in a name to find background information about a financial professional. The Securities and Exchange Commission has a similar search tool called Investment Adviser Public Disclosure (opens in new tab). You also can visit your state's department of insurance website and verify whether an insurance producer is licensed.

4. Can you show me a sample financial strategy or plan?

Advisers should have a well-defined process they use when making recommendations. That doesn't mean they should have a cookie-cutter plan that they give out to everyone—far from it. Every client's goals and resources are different, so there should be a process for determining what's best for your situation. They should be able to show you what that process is or provide you a sample plan that demonstrates how they develop a recommendation to fit your situation.

5. Have your ever been publicly disciplined for illegal or unethical activities, or filed for bankruptcy?

It's amazing how many people who claim to be financial advisers can't handle their own money. In fact, it's downright scary seeing them give advice when their track records show they can't follow that advice themselves. You should be able to practice what you preach and have a good handle on what you're talking about before handing out advice to others.

Joshua M. Blaker is founder and president of Accrue Wealth Designs, a full-service financial advisory firm. He has passed the Series 65 securities exam, qualifying him as an Investment Adviser Representative in Arizona, and holds the Registered Financial Consultant (RFC®) designation. He is also licensed as an Insurance Professional in multiple states for life and health insurance.

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.

Joshua M. Blaker, RFC, Investment Adviser
Founder and President, Accrue Wealth Designs

Joshua M. Blaker is founder and president of Accrue Wealth Designs (opens in new tab), a full-service financial advisory firm. He began in the financial-services industry in 1997, working alongside his father. As an income and preservation specialist, Blaker works with retirees and individuals planning for retirement. He has passed the Series 65 securities exam, qualifying him as an Investment Adviser Representative in Arizona, and holds the Registered Financial Consultant (RFC®) designation. He is also licensed as an Insurance Professional in multiple states for life and health insurance.

Investment advisory services offered only by duly registered individuals through AE Wealth Management LLC (AEWM). AEWM and Accrue Wealth Designs are not affiliated companies. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. AW06183444