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Top 5 Questions to Ask A Financial Advisor in 2024

Last updated 01/28/2024 • By Jason Siperstein, CFA, CFP®, RMA®

Ask A Financial Advisor in 2024

We meet with three to five prospects each week looking to hire a financial advisor. Many have done a lot of research to prepare for the meeting.

However, the financial services industry is so confusing that we thought this post needed to be published.

Our goal in this blog post is to help you ask questions…questions where the answers cannot be manipulated!

Without further ado, check out the TOP 5 QUESTIONS to ask a financial advisor in 2024.

1. How Are You Compensated?

This is probably one of the best questions you can ask a financial advisor. Personally, I think it is better than “are you a fiduciary” or “are you working in my best interest?”

There are simply too many definitions of fiduciary or best interest to put much stock into them. However, there is no way to hide from “how are you compensated?”

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OUR TAKE: You want this answer to be fee-only. This means that the financial advisor is only compensated by his or her clients. This means that there are no commissions of any kind.

Keep in mind that fee-only is NOT the same as fee-based. Fee-based advisors receive a blend of commissions AND fees. If you are interested, you can click here
to view the article we wrote explaining this in more depth.

At the end of the day, you want to make sure that your advisor is not paid by anyone other than you – the client.

If you ask this question and still have doubts, you might want to ask the advisor how his or her firm is registered. If the firm is registered as a Registered Investment Advisor (RIA), you are in good shape. However, if the firm is dually registered as an RIA and Broker/Dealer, it may be cause for concern.

Advisors of a Broker/Dealer generally have a duty of loyalty to their firm AHEAD of their client.

2. Are you primarily a financial planner or investment advisor?

This is the second most important question you should ask a financial advisor. And it is a major point of differentiation and will set the tone of the relationship. Is the advisor going to help on all areas where money and life intersect or only on your investment portfolio?

Job titles alone are not sufficient to answer this question. You will want to ask the advisor to explain their role.

A “financial planner” will help with insurance, estate planning, saving/budgeting, and more, in addition to investments. If this is what you are looking for, I would highly recommend that the advisor hold the Certified Financial Planner™ (CFP®) designation. In my view, this is table stakes for this type of relationship.

An “investment advisor” will help primarily with the investment portfolio. In this relationship, it is important to understand their investment philosophy and style. If this is what you are looking for, I would highly recommend that the advisor hold the Chartered Financial Analyst (CFA) designation. (The CFP® is to planning what the CFA is to investing.)

This begs the question, what type of advisor should you use?

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OUR TAKE: If you could only have one, most people would be better off with a financial planner. Studies have shown that there is much more value that can be created from tax strategies, retirement planning, insurance planning, student loan planning, etc. versus an advisor that focuses largely on the investment portfolio.

This graphic below does a nice job at quantifying the value of financial planning advice.

Financial planning advice

3. Who will I primarily be working with?

You cannot assume it will be the person on the other side of the table (or computer screen)!

If you are interviewing a large firm, your first meeting may be with a business development officer and not your primary contact. Also, depending upon the firm size and your asset level, your main point of contact could be a junior advisor and/or relationship manager (and not a lead advisor!).

This is not necessarily a bad thing, just something you need to know before deciding to move forward.

At the end of the day, you must be comfortable with your advisory relationship. This will be the firm that you share some of your best moments (planning for promotions, weddings, celebrations, etc.) and some of your worst (planning for disability, death, etc.).

In addition to the advisor having the technical knowledge, they should have good “bed-side manner.” And if married, both spouses should feel equally comfortable with the relationship. I have heard far too many stories of the advisor only speaking to the breadwinner of the relationship.

4. What are your credentials?

My wife is a physician. We can safely assume that she has earned her MD. Not so in the financial services industry…

If you are working with an advisor that accepts commissions, they are only required to have passed the Series 7 exam.

It is important to know that there are NO education requirements to sit for this exam. There is also NO experience requirement to start facilitating transactions on a client’s behalf.

If you are working with an advisor that accepts fees, they are only required to hold the Series 65. Just like the Series 7, there are no other prerequisites to sit for this exam and to start “advising” clients.

If you are wondering, both exams can be passed in 2 – 4 weeks with some degree of studying – not a high bar.

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OUR TAKE: Due to the low barriers to enter this industry, we are firm believers that an advisor should have at least one advanced designation – preferably two.

The two most common designations in the field are:

  1. Certified Financial Planner™ (CFP®)
  2. Chartered Financial Analyst (CFA)

CFP®: It takes most candidates 3 to 5 years to study for and pass this exam. In addition, you must hold a college degree or higher and three years of direct planning experience before you can use the marks.

You should always look for these marks if you are looking for a planning relationship. It is the gold standard in the industry.

CFA: A typical candidate takes 4 to 5 years to pass all three exams. You must also hold a bachelor’s degree and have completed three years of professional work experience. Candidates’ report studying an average of 975 hours to pass all three levels of this exam – not an easy feat.

If you are trusting an advisor to manage your portfolio, you are going to want that individual to understand how markets work! The Series 7 and 65 do not provide an adequate education in this area.

This is in much the same way that if you were having surgery, you would want your surgeon to have an advanced knowledge of surgery as opposed to simply passing entry-level Biology 101.

To me, both designations are table stakes when choosing an advisor. If the advisor or team has these credentials, you are on the right track in your search.

But what if you have more specific needs?

In addition to the CFP® and CFA, you may also want specialty credentials…

If you have student loans, you may want to ensure that your advisor has the Certified Student Loan Professional (CSLP®) credential.

If you need help around planning your retirement, you may want to ensure that the advisor holds the Retirement Management Advisor® (RMA®) or Retirement Income Certified Professional® (RICP®) designations.

If you are going through a divorce, you may want to ensure that your advisor has earned the Certified Divorce Financial Analyst (CDFA®) title.

Lastly, make sure the advisor’s credentials fit their specialty. In other words, make sure that the advisor with the CSLP® focuses on families with student loans. Just like you would not want a psychiatrist performing your heart surgery, you would not want an advisor who specializes in one area to give you advice in another! I suspect it would not end well…

5. Where do you keep my money?

Always, always, always make sure you advisor use a custodian! A custodian is the bank that holds your assets like Schwab, Fidelity, Citigroup, or J.P. Morgan.

The job of the custodian is to hold your assets and the job of your investment advisor is to direct and manage your account.

The reason Madoff was able pull off his infamous Ponzi Scheme was because he did not have a custodian. His firm “held” all the assets. Ipso facto, he held all the assets! If you want to learn more about the Madoff Ponzi Scheme, Netflix just debuted “MADOFF: The Monster of Wall Street.”

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OUR TAKE: If your advisor does not use a custodian, alarm bells should be going off. In today’s environment, there is no reason strong enough to forgo the safety of a custodian.

Bottom line

Make sure you understand the advisor’s answers to these questions. They should be simple and understandable. If you feel like the advisor is being elusive or using industry jargon ad nauseam, move on to your next interview.

At the end of the day, the role of the advisor is to simplify the complex and make your life easier and less stressful.

By Jason Siperstein, CFA, CFP®, RMA®

Jason Siperstein is a fee-only financial planner that specializes in retirement planning. He is based in Rhode Island and serves clients locally and across the country. Jason is called on by local and national news to share his insights.

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