4 Questions Your Financial Advisor Hates To Hear
It’s no secret that financial advisors can be indispensable when it comes to helping manage your savings, investments, and future financial goals. Therefore, finding the right one is crucial.
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Yet, when it comes to creating a smooth, working relationship and making a great first impression, it never hurts to do your homework and be mindful of the four questions financial advisors absolutely hate being asked. We spoke with Andrew Latham, CFP, managing editor at SuperMoney to get the inside scoop.
How much money do you personally have invested in the same funds or investments?
Latham explains that discussing his personal finances can be both sensitive and irrelevant. “The amount an advisor invests in specific funds may not accurately reflect their expertise or the suitability of those investments for you,” he stated. In other words, financial advisors utilize a custom approach to client investments, and your financial goals may not align with his. No two people are alike. Additionally, individuals can have personal and emotional reasons for investing in certain funds that have nothing to do with rote mathematical projections.
Will I get a better return on investment if you manage my savings or if I invest them in a well-diversified portfolio of low-cost index funds?
As it turns out, this is not such a cut-and-dry question either – primarily because financial advisors typically collect some sort of fee for their services. Yet, their personal value is hard to quantify. For instance, while an advisor’s guidance can be invaluable to a client’s long-term strategy and the ability to avoid financial pitfalls, it is difficult for them to consistently outperform a diversified portfolio you manage yourself because you don’t owe any commission on it.
Therefore, the return on investment depends on personal goals and cannot be measured by numbers alone. Certified Financial Planner Hanna Horvath took this savings versus investment question one step further when she stated that savings can offer a sense of security and peace of mind, but “by investing in assets like stocks, bonds, or real estate, you can potentially earn higher returns over a long period of time. However, investing comes with some risks.” Once again, return on investment can mean different things to different people on a broad spectrum of safety versus risk.
Have you ever been subject to disciplinary actions or complaints?
While Latham admittedly does advise asking this question, he cautioned that “for obvious reasons, financial advisors may feel uneasy discussing past disciplinary actions or complaints, even if they’ve been resolved.” And, regardless of how an advisor responds to this question, he considers it essential to perform a background check anyway through regulatory agencies like the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
How do you get paid and what are all the fees involved?
Similar to a first job interview which is really more of a chemistry read, no one is particularly comfortable discussing rates upfront. That said, Latham agrees it’s a careful balance between acquiring comprehensive information while not prematurely creating confusion with complex numbers and formulas specific to individual needs. “This is a particularly awkward question for advisors who may receive compensation through commissions or a combination of fees and commissions that vary depending on the services provided,” Latham stated.
To ensure a satisfactory answer to a murky question, a more concrete tactic is advisable: ask for a printout of your advisor’s expenses associated with each service, complete with potential conflicts of interest. Then you are sure to be armed with a more complete picture and an overall better understanding.
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This article originally appeared on GOBankingRates.com: 4 Questions Your Financial Advisor Hates To Hear
