Top 7 Questions to Ask a Financial Advisor in 2023

In this article, I’m sharing the top questions to ask a financial advisor in 2023.

I’m also sharing how to choose a financial advisor.

Hiring a financial advisor is one of the BIGGEST financial decisions you’ll ever make. And one wrong recommendation (from the wrong advisor!) can crush your retirement plan.

So if you want to learn how to choose a financial advisor and what questions you need to ask, you’ll love this article.

How to Choose a Financial Advisor

With over 300,000 financial professionals in the U.S., knowing how to choose a financial advisor is challenging.

One of the biggest contributors to this challenge is that financial advisors are NOT required to use a consistent title.

For example, you might come across titles like financial planner, wealth advisor, investment manager, and financial consultant.

While they might all seem similar, these titles don’t provide any insight into what the person actually does. Unlike doctors and attorneys, there is no legal standardization of titles and no clear definition for retirement savers to lean on.

In fact, a mortgage broker could call themselves a financial planner! 😲

3-Steps to Choosing the Best Financial Advisor for You

To help you sort through the confusion, here are three simple steps explaining how to choose the best financial advisor for YOUR needs:

1. Document your big questions and pain points. For example, do you want to know when you can retire? How to reduce taxes? Or are you just starting your financial journey and need help establishing a long-term plan?
2. Learn About the Different Types of Financial Advisors. Each type of advisor has a different service model and fee structure. Your specific needs and pain points — coupled with your personal preferences — will help you identify the right type of advisor for you.
3. Interview 3-5 of the Best Financial Advisors and Ask Them Tough Questions. The best financial advisors will display patience during the interview and be prepared to answer your hard-hitting questions. They will also provide a detailed process to help you further evaluate them.

» Learn about the 5 Different Types of Financial Advisors

One key takeaway when learning how to choose a financial advisor is that you cannot rely solely on an advisor’s professional title. It’s meaningless and can be deceptive.

Instead, use the 3-step process above as a starting point for choosing the best financial advisor for your needs. Most importantly, take your time making one of the most important decisions in your financial life.

Top 7 Questions to Ask a Financial Advisor (2023)

While most people can easily identify their needs, goals, and pain points and research the different types of advisors, knowing EXACTLY what questions to ask a financial advisor can be difficult.

Given how important that final step is, here are the top 7 questions I suggest asking a financial advisor in 2023 and beyond.👇

1. Are You a Fiduciary 100% of the Time?

A fiduciary financial advisor is legally required to put your interest first.

A fiduciary is also prohibited from selling you a financial product (e.g., annuity) in return for a commission.

Their compensation must come directly from you (the client) and be a transparent line item on your statement.

If you want your best interests to be ahead of anything else, it’s critical to ask a financial advisor the following question:

“Are you a fiduciary 100% of the time?”

Unfortunately, most financial advisors in the United States must answer, “No!”

And that’s because most advisors are “dually registered.”

A “dually registered” financial advisor can take their fiduciary hat on and off. In other words, they are NOT a fiduciary 100% of the time.

One day, they are a fiduciary putting your interests first; the next, they sell you an insurance product with hidden fees and commissions.

When a financial advisor acts as a fiduciary 100% of the time, you don’t have to wonder how they are being compensated.

If you have any doubt, ask a financial advisor to put their fiduciary status in writing. Here is a Sample Fiduciary Statement of Commitment that you can consider using.

2. What is Your Specialty + How Many Clients Do You Have?

It’s critical to ask a financial advisor what type of clients they specialize in working with. After all, you wouldn’t go to a personal injury attorney if you needed help with a divorce.

Here are examples of financial advisor specializations:

• Specific professions such as doctors, teachers, or Optometrists.
• Employees of a major company, like Broadcom or Microsoft.
• Certain age groups, like millennials or baby boomers.

It’s important that your financial advisor has the right expertise to help with your specific situation. It’s also comforting to know they’ve successfully helped other clients with similar needs and challenges.

Speaking of other clients, asking a financial advisor how many clients they serve is another good question for two reasons:

1. It will help indicate how much time they have to spend with you.
2. It highlights how personalized (and customized) their services are.

On average, an experienced lead financial advisor can serve about 100 clients. That number can increase or decrease depending on their service model, fee structure, and total team headcount.

3. What Is My Total “All-In” Cost to Work With You?

Just because a financial advisor is a fiduciary 100% of the time does NOT mean it’s easy to understand the all-in costs.

Here are some of the common fees you might pay when working with a fiduciary financial advisor:

• Advice Fees. These can be in the form of hourly fees, one-time project fees, or a percentage of your investments.
• Transaction Fees. These are charged by the custodian (e.g., Fidelity, Schwab) when your advisor buys or sells investments on your behalf.
• Expense Ratio. This fee is charged by a mutual fund or exchange-traded fund (ETF) to cover operational expenses.

It’s important to note that a fiduciary financial advisor is ONLY compensated by the advice fee. And while they don’t benefit from other fees, they still have a legal responsibility to keep those costs low.

For example, let’s say your fiduciary advisor recommends that you put $100,000 in an S&P 500 fund.

Here are two S&P 500 mutual funds and their expense ratios (as of 8/30/2023):

1. Rydex S&P 500 (RYSOX) = 1.60% or $1,680 per year
2. Fidelity S&P 500 (FXAIX) = 0.015% or $15 per year

That’s a difference of $1,665 per year!

Your fiduciary financial advisor is legally required to recommend the lower-cost option when two investments are identical (like the example above). This is why asking about all the fees you might incur is so important.

Review the financial advisor’s Form ADV and CRS for a detailed breakdown of their fees and services. These are publicly available documents, and every SEC-registered financial advisor must provide you with copies.

4. What Experience Do You Have Navigating the Complex World of Financial Planning?

A financial advisor’s experience is not just the number of years they have been in business.

What is likely most important is the type of experience they have in solving very specific problems.

Some examples include:

• Reducing taxes in retirement (e.g., reducing or avoiding IRMAA)
• Creating tax-efficient retirement income
• Lowering risk while maximizing investment returns
• Optimizing insurance policies in retirement
• Increasing tax deductions through charitable giving (e.g., donor-advised funds)

While you are asking them about their experience, you might also ask:

“Does your firm have a documented process for providing financial planning services and investment advice?”

This process should include how they gather your data, analyze your unique situation, and arrive at their recommendations. It should also include a methodology for implementing and monitoring this advice.

Lastly, one tip for gauging a financial advisor’s experience level is to ask about professional designations.

The most prominent designation is the CERTIFIED FINANCIAL PLANNER™ or CFP® certification.

A CFP® Professional must adhere to strict ethical standards, complete a series of rigorous coursework and exams, have at least three years of financial advisory experience, and have a four-year college degree.

In addition, a CFP® Professional must take continuing education classes each year to keep up with the ever-changing world of financial planning.

5. Will You Provide Me with a Comprehensive List of Your Advisory Services?

Asking a financial advisor for a list of their services will help you understand if they:

1. Have documented processes and procedures in place to care for their clients properly.
2. Focus on one particular area of wealth management (e.g., investment management) or if they take a holistic approach.

Typical financial advisor services include retirement planning, insurance, investment management, tax planning, and budgeting.

However, highly specialized advisors might offer more nuanced services such as stock option optimization, roth conversion analysis, Social Security timing, and charitable giving.

It should be easy for an advisor to provide a list of their services. You might move on to the next candidate if their response is vague or confusing.

6. Where Do You Keep My Money and How Can I See It?

If there is one question to ask a financial advisor in 2023 that you do NOT want to miss, it’s this one.

Please confirm that your financial advisor uses a reputable third-party custodian to hold your investment/retirement accounts.

Well-known custodians include Fidelity, Schwab, Pershing, and TD Ameritrade.

When your advisor works with a trustworthy third-party custodian, they can’t go rogue with your money. They have limited authority to manage your investments and oversee your accounts.

(Hint hint: Bernie Madoff was NOT using a third-party custodian.)

A reputable third-party custodian also provides investors with FDIC and SIPC insurance.

Every third-party custodian provides online access for you to see your accounts. Many of them also have physical branches across the U.S. for you to visit.

7. What Is Your Investment Philosophy and How Will You Manage My Investments?

While investments are just one piece of financial planning, asking a financial advisor about their philosophy and approach is helpful before hiring them.

Does the advisor use low-cost index funds? Do they actively trade individual stocks? What about investing in gold, hedge funds, and other alternative investments?

Additional investment questions to consider asking a financial advisor include:

• How do you incorporate investments held in a workplace retirement plan like a 401(k)?
• How many positions do you include in each investment portfolio?
• Can you incorporate individual stock positions that I don’t want to sell?
• Do you have a process for tax-loss harvesting?
• How about tax gain harvesting?

In addition to getting answers to these questions, you might ask for a sample portfolio to look under the hood and see things for yourself. While you’re at it, check on those expense ratios!

Free Resources for Investors Looking for a Financial Advisor

In addition to these top 7 questions to ask a financial advisor, here are a few of my favorite free resources to use:

• Questions to ask a CFP® Professional [Financial Planning Association]
• Investor Resources and Checklists [NAPFA]
• Financial Advisor Interview Questionnaire [Garrett Planning Network]

Bottom Line

Choosing a financial advisor is one of your most important decisions.

Working with the right advisor for your unique situation can be the difference between a carefree retirement and a stressful one.

When meeting with a financial advisor, don’t be afraid to ask tough questions. Like any other professional, they are there to serve the needs of their clients. A good advisor will welcome any and all questions you ask.