10 Questions to Ask a Financial Advisor

If you're thinking about hiring a financial advisor, make sure you hire the best person for you and your situation. Here are 10 questions you should ask an advisor. The questions cover how you’ll work together and the advisor’s investment strategy.

1. Are you a fiduciary?

A fiduciary works in the best interest of the client and only recommends investments that are the best fit. Nonfiduciaries, such as broker-dealers, need only to recommend products that are “suitable” — even if they're not the lowest-cost or most ideal for you.

2. What are your qualifications?

There are many types of financial advisors, and they can have a confusing list of initials behind their names. And whether a finance professional goes by "investment advisor" or has a certified financial planner designation, it's your job to vet them.

The Financial Industry Regulatory Authority's (FINRA) professional designations database describes several different designations, if there are any education requirements, if anyone accredits the designation, whether there's a published list of disciplinary actions and if you can verify the person’s status^[0]

You can also review the advisor’s annual Form ADV to check their record.

» MORE: The difference between a CFP and a CPA

3. How do you get paid?

Advisors can use a variety of fee structures. To keep it simple and avoid conflicts of interest, consider focusing on fee-only advisors. They don’t get commissions for selling products.

"Make sure it’s fee-only — those particular words," says Alice Finn, founder of PowerHouse Assets and author of "Smart Women Love Money," a guide to investing. (Some of the questions here are from her book.)

Fee-only advisors might charge a percentage of the assets they manage for you, a flat fee for services, or an hourly fee.

» MORE: How much does a financial advisor cost?

4. What are my all-in costs?

In addition to paying the advisor, you’ll face other fees — and you'll want to know what they are. Fees can reduce your savings over time. "You can lose half your net worth without even knowing it," Finn says. "You want to be vigilant."

» Need to back up a bit? Read our cheat sheet for how to choose a financial advisor.

5. How will our relationship work?

Put another way: How much access will you have to the advisor? You want to know how often you’ll meet and whether they're available for phone calls or emails outside of scheduled appointments.

» MORE: What financial advisors do and what to expect from the relationship.

6. What's your investment philosophy?

It’s important to know whether you and the advisor have the same investment management philosophy. Here’s why: “You have to believe in what they’re doing to stick with it,” Finn says. “When financial advisors really do their job is when the market is down and they can convince you to stick to the same page,” she says.

It's also important to make sure you and your advisor align on investment style. For example, if impact investing is important to you, you may want to ask whether your advisor will be able to help you create a portfolio that aligns with your values.

Also ask: Who are your typical clients? Find an advisor who is used to a situation like yours and is able to help you meet your goals.

7. What asset allocation will you use?

You’ve heard how important it is to be diversified, right? Your asset allocation is how you create a diversified portfolio.

“It drives most of your returns,” Finn says. “You don’t want someone who is just going to pick U.S. large-company stocks.”

Instead, a diversified portfolio may include a mix of domestic and international stocks, and small-, mid- and large-cap companies, as well as other types of assets.

8. What investment benchmarks do you use?

Advisors should compare your portfolio's performance to benchmarks that directly relate to what you're invested in, or be able to explain why they don’t.

Some managers will use a “straw-man benchmark,” Finn says. For example, the advisor says: “My goal is to beat the Standard & Poor's 500.” But if that advisor is investing in a diversified portfolio beyond simply large-cap U.S. companies, that benchmark is a mismatch.

“Over time, they should beat the S&P 500, because they’re taking on more risk,” Finn says.

» Compare your options: Robo-advisors vs. financial advisors

9. Who is your custodian?

Ideally, your financial advisor has hired an independent custodian, such as a brokerage firm, to hold your investments rather than act as their own custodian. That provides an important safety check.

“If I send my clients performance information … and it tells them how much I say is in their account, they can go online any minute and double-check,” Finn says.

10. What tax hit do I face if I invest with you?

This route helps ensure the advisor has your tax bill in mind when making financial decisions. And asking about investment taxes and fees is a way to explore what your estimated net return might be.

“What you want to know is: What do you get to keep after fees and after taxes?” Finn says.