Year-End Review: 6 Questions You Must Ask Your Financial Advisor


The end of 2012 is fast approaching, and with it the final days to spiff up your finances and make plans to start 2013 on the right foot.

If meeting with your financial advisor is on your December "to-do" list -- and it should be -- here are a half dozen things you should do to prepare that will help you get the most out of the meeting.

What's New?

Have your circumstances changed since the last time you met with your advisor? Things like having an adult child move back home for temporary financial support, or paying for an emergency medical event, can affect your overall financial plan. So be sure to let your advisor know about any events in your life that may have changed your near- or long-term goals.

Gather your most recent account statements -- 401(k), brokerage, bank, credit card -- to bring to the meeting. Once you're sitting in front of your advisor, here are six questions you must ask him or her before the ball drops in Times Square.

1. Should I make any changes to my portfolio?

Financial advisors talk a lot about asset allocation. It's the process of spreading your money across different types of investments -- stocks, bonds, cash -- to keep all your eggs from being in one basket.

Because asset allocation is so critically important, ask your advisor if you should:

  1. Rebalance your target mix of stocks and bonds based on your long-term financial goals and your risk tolerance;

  2. Improve the diversification of your investments, and/or;

  3. Upgrade the quality of your investments.

2. Do I need to do anything about my tax-deferred accounts?

Ask how much you can add to your tax-deferred accounts, such as IRAs and education savings plans like Coverdell accounts and 529 plans, before the end of the year. Ask if you should convert part or all of your traditional IRA to a Roth IRA. And, if you're over age 70½, you must withdraw a certain amount from your traditional IRA before Dec. 31. Let your advisor help you with that.

Sponsored Links

Also, see if your advisor will review your 401(k). He's generally not paid to do so, but a good advisor wants to make sure you're diversified in all of your accounts, not just the ones he manages for you.

3. Should I implement any tax strategies before Dec. 31?

Ask your advisor to evaluate your portfolio for any year-end tax planning opportunities, like whether to recognize certain losses or gains, and how much of each. Most advisors expect taxes to increase in the coming year. Taking time to prepare before then is a wise move.

4. How did my portfolio perform in 2012?

If your financial advisor manages money for you, ask him how you did. Did you make money or lose money? What investments performed the best and the worst? How did your portfolio perform compared to a benchmark, like the S&P 500? Most important, ask if you're on track to meet your long-term goals based on your portfolio's performance.

5. How much is my portfolio costing me?

You may like your financial advisor, think he's a great guy and a spiffy dresser. But how much is he costing you? Fees should be very transparent, but not every advisor does a good job of explaining fees clearly and concisely. Also, small improvements in fees can translate into big dollars in your accounts.

Your advisor should be able to give you hard dollar amounts for what he's costing you in terms of commissions, asset management fees, hourly fees, or however you pay him. Your advisor works for you. His ongoing advice and services should justify the amount you shell out to keep him in your employ.

6. What can I do to make 2013 a financially successful year?

A new year is like a clean slate. Don't beat yourself up over what you didn't do in 2012. Focus instead on what you will do in 2013 to make it your best investing year yet. Take note of what your advisor recommends -- be it beefing up your savings account, increasing your IRA contributions, or drafting a will.

Commit to making 2013 a great year. By asking your advisor these questions and acting on his or her responses, you'll set yourself up nicely for a very prosperous new year.

Related Articles

You can follow Motley Fool contributor Nicole Seghetti on Twitter @NicoleSeghetti.