Asking Financial Advisors the Right Questions

  • Order Reprints
  • Print Article
Illustration by Ben Mounsey-Wood
Text size

A single question, if it’s the right one, can provide considerable insight for individuals and families looking to choose the best financial advisor to serve their long-term objectives. And that question, in turn, can offer savvy, well-prepared advisors the perfect opportunity to differentiate their practices from a multitude of competitors.

With this in mind, we asked three of the top minds in the financial-advisory business, “What is the most important question for a client to ask of their financial advisor, and what does the advisor’s response to it reveal?”

Ric Edelman, co-founder and executive chairman, Edelman Financial Services

It’s a two-part question: Has your investment philosophy/strategy changed in the past 20 years, and if so, how? And do you personally own the investments that you recommend to your clients?”

You want an advisor who has been in this business since the 1990s—someone who has gone through the dot-com bubble bursting of 2000, 9/11, and the credit crisis of 2008. Only with that lens can you be confident that the advisor has the experience to understand what it’s like to manage assets and counsel clients during periods of unprecedented volatility, heightened uncertainty, and new depths of fear.

You don’t want the next crisis to be the first one that your advisor experiences. Instead, you want a skilled, tenured professional who can give you effective guidance, not someone who’s as new to this as you are.

And when you encounter an advisor with 20-plus years’ experience, you want to know that his or her advice has remained steadfast and consistent throughout these periods. That’s not to say that the specific investments might not have changed. But you do want to know that the approach itself is the same.

Many advisors are selling products or endorsing strategies that are vastly different from what they were promoting in the past—and they often changed ideas only after whatever they had been touting failed to deliver the returns they’d promised. This has to make you wonder if their current recommendations will one day fall victim to the same fate—leaving you with the same poor returns they gave previous clients.

And it’s key to ask if they own the investments they’re telling you to buy. Too many advisors don’t own what they promote—and you’d never want to dine at a restaurant if the chef refuses to eat there.

It’s important that your advisor’s goals and yours be aligned, and one of the best ways to do this is to insist that your advisor own the same investments that you own. Sure, the asset allocation might vary based on different needs, but that’s very different from working with an advisor who invests his or her money totally differently from how you’re investing yours.

Joe Duran, founder and CEO, United Capital Financial Partners

Ask, “How will I know if you’ve really earned your fee?”

If your advisor says he will outperform the market or build a financial plan, then you can probably find a better advisor. Great advisors earn their fees by helping you live the best financial life you can. They bring value by improving the way you make financial decisions in a dynamic, engaging, and interactive way. They give you a genuine sense of control over your financial life.

First, they start by understanding you (and your family) and what you want your life to be like. Second, they help you make trade-offs in an understandable way to help you optimize the choices you make. And lastly, they track, measure, and help you adjust as life unfolds.

They are mobile and connected to you through your phone 24/7 in every aspect of your financial life. If they can’t show you a system and set of tools that you can understand, then you’re relying on a yellow pad and the knowledge of one person.

Everyone wants more than they can have, and advisors worth their fees will help their clients live richly, not just help them die rich.

They will understand that money is fuel; it’s not a destination.

Dalal Maria Salomon, CEO and founding partner, Salomon & Ludwin

Here’s the question: Most advisors say they can create a financial plan. Beyond creating an initial plan—how do you make sure that the plan remains relevant to me and my family, and how do you incorporate it into our overall ongoing relationship?

And here’s the answer: Life is not stagnant, so your financial road map needs to change and transform accordingly. Whether it’s dealing with the cost of paying for unplanned health issues or preparing for a wedding of a child, new grandchildren, the desire for a second home, college-education expenses, or any myriad of possibilities—your advisor should be the first person you contact in order to incorporate those changes, desires, and needs into your financial plan.

Your plan should never be a one-time process that happens to fall only at the beginning of your relationship with your advisor. It should be discussed and tweaked at every opportunity to keep it relevant.

It is from this plan that so much of the money-management and cash-flow management decisions can be made.

For example, with a clear understanding of your financial requirements and when those requirements are needed, we can create a clear sense of dollars and dates. With enough foresight of those dollars and dates, lifestyle cash can be created at more opportune times.

For example, if the plan shows that $50,0000 is required for a new car in two years and the markets are hitting all-time highs—securities can be sold to raise that cash while markets are favorable (as opposed to waiting two years when the markets may be less favorable).

By understanding when and how much is needed, your advisor should be able to make thoughtful and logical cash-flow decisions on your behalf.