10 Questions to Ask a Financial Advisor

1. What Services Do You Provide?

"Financial advisor" is a general term that encompasses a wide range of financial professionals, including financial planners, estate planners, investment advisors, insurance agents and tax professionals.

To choose the right financial professional, decide what kind of help you need. For example, do you need a one-time service, such as preparing an estate plan or purchasing life insurance, or are you looking for ongoing guidance on everything from budgeting to estate planning?

If the latter, consider a financial planner. Financial planners are advisors who create an all-inclusive plan to help you achieve your short- and long-term financial goals, from buying a home to retiring. In addition to developing a financial plan, financial planners often provide services to help you implement it, such as managing your investments.

Tip: Developing a financial plan on your own can be a good starting point if you're young with few assets, but as your financial life gets more complicated, a financial advisor can help you make the most of your money.

2. What Are Your Qualifications?

The terms "financial advisor" and "financial planner" aren't regulated by law, so it's essential to verify that a professional is qualified before entrusting them with your money. Here are common certifications to check for.

• Certified financial planners (CFPs) must have completed relevant education, passed the CFP exam, comply with the CFP code of ethics, and have 6,000 hours of professional experience or 4,000 hours of apprenticeship. You can find CFPs using the CFP Board of Standards' Find a CFP tool.
• Chartered financial analysts (CFAs) must have 4,000 hours of professional experience and pass a series of intensive exams covering investment analysis, wealth management and portfolio management.
• Registered investment advisors (RIAs) manage investments for their clients. They are regulated by and must be registered with the U.S. Securities and Exchange Commission (SEC) and may also be registered with state securities agencies. They're also bound by fiduciary duty (more on that below).

Tip: Visit the Financial Industry Regulatory Authority (FINRA) database to see what various financial professional designations mean and how to check a professional's credentials online.

3. How Do You Get Paid?

There are usually three ways financial advisors can get paid: fee-only, commission-based or a combination of fees and commissions.

• Fee-only financial advisors charge fees that may be an hourly rate, a flat fee for a specific service (such as creating a financial plan), a retainer or a percentage of the assets they manage for you. They don't earn any money from products or services they recommend to you.
• Commission- and fee-based financial advisors charge fees for their services, but also earn commissions on products or services they recommend to you.
• Commission-based financial advisors make money solely from commissions on the products they recommend to you. This might lead to a conflict of interest if they recommend products that aren't ideal for you simply to earn a commission.

Tip: If financial advisor fees are too high, consider a robo-advisor, which uses algorithms to create and manage a diversified portfolio for you. Hybrid robo-advising gives you the option to speak with a professional for less than the cost of a traditional financial advisor.

4. Are You a Fiduciary?

Financial advisors who are fiduciaries are legally required to act in their clients' best interests, including disclosing any potential conflicts of interest and complying with a code of ethics. RIAs and CFPs are required to follow a fiduciary standard. Working with a fiduciary financial advisor can give you confidence that their advice is designed to benefit you, not to earn them commissions.

Tip: You can search for fee-only fiduciary financial planners using NAPFA's Find an Advisor tool or the Alliance of Comprehensive Planners website.

5. What Types of Clients Do You Work With?

Your financial advisor should understand your specific priorities, life stage and unique financial needs. For instance, a 30-year-old single parent will likely have different financial concerns than a high-earning, two-income couple who are both nearing retirement. To find a financial advisor whose experience and expertise matches your needs, ask potential financial advisors what types of clients they typically work with.

Tip: Asking whether the financial advisor requires clients to have a minimum amount of assets can help eliminate some candidates from your list.

6. Have You Ever Been Cited for Disciplinary Reasons?

Ask if disciplinary action has ever been taken against the financial advisor by regulators or professional organizations, and if there have been any client complaints. Use the SEC's FINRA BrokerCheck or the SEC Investment Professional Online Tool to confirm if a firm or individual is registered and licensed, as well as to check for any disciplinary or legal actions and complaints. You can also check the Better Business Bureau (BBB) website for client reviews.

Tip: RIAs and registered broker-dealers must give new clients a client relationship summary (Form CRS) that explains services, fees and costs; discloses any conflicts of interest; and lists any reportable disciplinary or legal actions against the firm or its advisors.

7. How Will You Communicate With Me?

Whether you prefer in-person meetings, phone calls, video calls or emails, it's important to find a financial advisor whose communication style suits your own. Also ask how often you can expect to hear from your advisor. For instance, will you have regular meetings to assess your progress toward your financial goals? Can you contact your advisor whenever you like with questions? Will your advisor reach out during turbulent economic times that may impact your investments?

8. How Will You Protect My Personal Financial Data?

Financial advisors typically use data aggregators and third-party software to gather all your financial information in one place. They use this dashboard or hub to manage and monitor your finances and share information with you. Although it's convenient, this approach can put your data at risk.

Ask your financial advisor how they safeguard, store and share your personal financial data. Verify that all of your data is encrypted and that anyone using it can only access the minimum information needed to accomplish a specific task. Find out if the firm provides any guarantees against losses due to cybercrime. Carefully read terms of use, privacy and security documents, and any client agreement or contracts.

Tip: You should have the option to better protect your personal data by using multifactor authentication and getting alerts of actions such as account logins or attempts, changes to passwords or personal information, transaction requests or account transfers.

9. How Do You Incorporate Tax Planning Into Your Advice?

Unless your financial advisor is a certified public accountant (CPA), enrolled agent or tax attorney, they can't prepare your tax returns. However, a financial advisor should be able to recommend the investment mix, account types and withdrawal timelines best designed to reduce your taxes, and should take into account factors like the potential tax impact of capital gains or losses or dividend payments. If you need more tax assistance, ask if the financial advisor can recommend a tax advisor or if they have one on staff you can work with.

Tip: Start your search for a tax professional long before tax season. This ensures they aren't too busy to talk to you and gives you time to implement their tax planning advice before your taxes are due.

10. What Is Your Investment Philosophy?

Your financial advisor's investment philosophy should align with your goals, financial situation and risk tolerance level. For example, if you're passionate about social responsibility, you may want an investment advisor who specializes in socially responsible investing. If you're seeking short-term returns, you might prefer an investment advisor with expertise in high-risk, high-return investments such as cryptocurrency or real estate. Other investment strategies advisors may recommend include buy and hold investing, value investing or growth investing.

Tip: Whether you're a risk-taker or crave security, putting all your eggs in either the high-risk or low-risk basket can cost you. A good investment advisor will create a diversified portfolio to help shield your money from market swings.

Frequently Asked Questions

The Bottom Line

Once you've narrowed your search for a financial advisor to a few top candidates, set up an introductory meeting, which advisors usually offer at no charge. Selecting the right financial advisor requires doing some homework, but it's worth the effort to ensure your hard-earned money is in good hands.

Maintaining good credit is worth the effort too. A good credit score can mean paying less for loans, credit cards and insurance, leaving you more money to put toward your future goals. To stay on top of your credit, sign up for free credit monitoring from Experian. It's a convenient way to get notified of important changes to your Experian credit report and credit score.