How to Evaluate a Financial Advisor

Money, calculator, and a notepad on a table: how to evaluate a financial advisor

Whether you’re searching for your first financial advisor or hiring someone new, here’s your guide on how to evaluate a financial advisor.

7 Questions to Ask a Financial Advisor

The following questions can serve as a good foundation to help guide your search for a new financial advisor. If you’re interviewing a new prospective advisor, make it a point to ask questions and evaluate their answers carefully.

#1 How Do Your Relationships with Clients Work?

Your relationship with your financial advisor is arguably one of the most important ones you’ll form in your life. Why is it that you’re looking to switch to a new advisor? What do you find unsatisfactory about your current advisor’s personality or practices? Do you not have enough access to them? Do you not feel heard?

You should have a clear understanding of why you’re unhappy with your current firm before making the switch. Otherwise, you may get stuck in a repeating cycle that will quickly become costly. After all, switching advisors can come with a price.

It’s also a good idea to find out how your new financial advisor prefers to interact with clients. How often will you have meetings? What access will they give you to information about your account? What methods of communication do they use?

#2 What Is Your Fee Structure?

Every advisor and firm has their own unique fee structure. Some advisors charge monthly, while others charge a percentage of your portfolio’s worth. When interviewing a financial advisor, you should know their fee structure and whether you’re comfortable with it. This will give you a chance to evaluate your decision before investing valuable time and assets.

#3 What Taxes Will I Owe if I Invest with You?

There’s a multitude of taxes associated with investments and portfolio holdings. A good financial advisor will not only have your best interests at heart when it comes to mitigating your fees but also keep your taxes in mind when making financial decisions on your behalf. As such, you should always ask the financial advisor you’re evaluating about taxes and fees, as doing so can help you estimate your net return and decide whether a prospective advisor will be worthwhile financially.

#4 What Are Your Qualifications?

Financial professionals can have a variety of qualifications and certifications. Some of the main financial certifications include:

  • CPA: Certified Public Accountant
  • CFP: Certified Financial Planner
  • CFA: Chartered Financial Analyst
  • AIF: Accredited Investment Fiduciary

These are just a handful of the certifications financial professionals can have — assuming they have a certification in the first place.

Don’t be afraid to ask about your advisor’s academic background and qualifications. Financial professionals interested in doing the best they can for their clients will be invested in their education and professional standing.

#5 What Is Your Investment Approach or Philosophy?

Everyone has a slightly different approach to investing, and some investors have a higher risk tolerance than others. Get to know your financial advisor’s investment philosophy to determine whether it aligns with your own views. If you’re the risk-averse type and you move forward with a risk-taking advisor, you may not like the outcome.

#6 What Custodian Do You Use?

You have every right to know what custodian your financial advisor uses to hold your assets. In fact, your advisor should be transparent about this without you having to do much digging. Make it your goal to work with an advisor who uses an independent custodian, such as a brokerage, to house your portfolio. Otherwise, you’ll have to trust your advisor’s word as opposed to being able to cross-reference what they say through the custodian’s online portal.

#7 What Asset Allocation Do You Use?

Talk to your financial advisor about their asset allocation style. Successful portfolios are usually diversified portfolios, and asset allocation is key. In other words, do they only work with U.S. Fortune 100 company stocks? Do they do a mix of both domestic and international stocks? Do they pull assets from companies of variable sizes? Their answer can be an indication of their investing style and the value they can bring to your portfolio.

Work with an Advisor You Can Trust

It’s important to choose your financial advisor carefully, as the relationship you develop with them will play a major part in your present and future success. Asking the aforementioned questions is a great first step toward deciding whether to stay with your current advisor or transition to a new one.

Are you in the market for a new Certified Financial Planner in Charleston? Our team at Good Life Financial Advisors of Mt. Pleasant is here to help! Contact us today to schedule a free, no-obligation consultation.

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.