What to ask your financial advisor during your very first meeting, according to experts
Making money is only half the battle — managing it is another. Using a financial advisor, however, can make tasks such as drafting a monthly budget, paying back your student loans, and navigating a major purchase like a home or a car considerably easier. What exactly to use your financial advisor for depends on your needs, but for most people, there’s every reason to invest in the service.
According to a recent study from the Federal Reserve, 40 percent of Americans don’t have just $400 in the bank to cover an emergency expense, nor would they be able to take out a loan and pay it back on time. Financial advisors can help you make room in your budget for an emergency fund in the event of an unforeseen circumstance like job loss or illness, in addition to assisting you in figuring out any other money-related issues that might come up. Yet a new survey from CNBC and Acorns Invest In You found that only 17 percent of Americans currently use financial advisors, with the rest of the population opting to handle their money on their own.
The hesitance to go to an advisor is understandable for several reasons, first and foremost being the price. Although financial information company BrightScope recommends only meeting with your advisor once a year (barring any times you might need to discuss unexpected changes or issues), advisors can cost anywhere from $2,000 to $7,500 for a flat-fee retainer, or $200 to $400 per hour, according to NerdWallet.
Additionally, many people tend to dislike talking about money with family and friends, let alone complete strangers, so meeting with an advisor might seem like an awkward and vulnerable situation. But if you choose to use a financial advisor, it doesn't have to be like that. Making your first experience as rewarding as possible starts with knowing the right questions to ask, and luckily, there is no such thing as a “wrong” question as long as it helps you understand if the advisor is the right fit.
Here are eight things to ask your financial advisor during the first meeting, according to experts.
1. Can you confirm your credentials?
Before the meeting, gather as much information on the advisor as possible. "Anyone can Google the top traditional questions to ask a financial advisor to find out about their credentials, fees for services, offerings, investment philosophies, and more," Mike Fanning, head of MassMutual Financial Group U.S, tells Mic. Have the advisor confirm whether your findings are accurate before moving on to the meatier issues.
2. Does your practice specialize?
Not all firms are created equal. "Some financial advisors specialize in certain areas, such as special needs, business owners, sports or entertainment professionals, or particular communities such as LGBTQ or Latino, as a couple of examples," says Fanning.
Lauren Anastasio, certified financial planner at personal finance company SoFi, says that if you’re in a specific situation — perhaps you have a child with special needs or you’re going through a divorce — you want to know that the person helping you is “well-versed for your unique needs.” She adds that “a good advisor should be upfront if they feel they don’t have the expertise to best serve you and may be able to either refer you to someone who specializes in what you’re looking for.”
3. How are you getting paid?
As you move through conversations about your own finances, you may forget to ask the advisor about theirs as it pertains to your work together. But it’s crucial you understand how they’re making money. “You should always be prepared to ask your financial advisor how they’re compensated and they should be prepared and comfortable answering the question,” says Anastasio.
Rather than focusing on the frequency of bill payments, Anastasio says it’s most important to know whether the advisor is fee- or commission-based. “A fee-based advisor is one that will charge an hourly or per-engagement fee," she explains. "An advisor that is paid on commission may not collect a check from you, but rather be compensated based on the products they sell to you."
It’s perfectly fine to ask how much of a cut they’ll receive, if that concerns you. “It’s important to note that just because someone is commission-based, [it] does not mean they’re not providing you with good advice,” says Anastasio. "However, commission-based advisors may not always have your best interest in mind, so you should proceed with caution.”
4. How would I end our relationship?
Maybe you’ll find that a few appointments in, you no longer see eye to eye, or your advisor will eventually conclude they can’t meet your needs after all. If that happens, you'll need to know in advance what to expect, so you won't end up surprised by any lingering fees or other issues.
“Ask what is required of you in the event you want to terminate the relationship as well as under what terms the advisor can terminate the relationship," says Anastasio. "Covering these uncomfortable but important topics upfront can help you avoid ugly surprises down the road."
5. What would your clients tell me about you?
Don’t be afraid to put the advisor on the spot; remember, during a first meeting, you’re basically operating as a pseudo hiring manager, so it's good to ask them what they believe other clients would say about their services. “In addition to the information that you would obtain from a financial advisor’s answer [to this], a response can reveal personality traits, patterns and themes that you might not otherwise uncover, which could contribute to either a positive or negative assessment of any work with them,” says Fanning.
6. How can you help me articulate my vision?
In order for your financial advisor to work effectively, they need direction. But verbalizing exactly what you need can be intimidating and uncomfortable — especially if it's your first time seeking help for your finances. “Something inspired you to reach out to a financial advisor,” says Fanning. “Articulate what that is the best you can, if you can.” That doesn't mean feeling pressured to mirror their financial jargon, though. Advisors are there to help you make sense of your own financial issues and guide you through them, so your language can be as simple as “Looking to pay off debt”, “pay for a wedding”, or “plan for retirement.”
“Maybe you only need to purchase insurance, maybe you just want a second look at your current investments, or perhaps you need in-depth guidance on retirement and education planning and you want to work with someone who can do it all,” says Anastasio. “This meeting is an opportunity for you to explain what services you’re looking for and for the advisor to determine whether they can meet your needs.”
7. What kind of documents should I bring next time?
You can typically come to your first meeting empty-handed, but at the end of the appointment, ask your advisor which documents to bring next time if you’ve decide to keep pursuing their services. Your advisor will need something tangible to work with if they're going to help you in the long-term — and that means acquiring every document that can paint a cohesive picture of your financial situation.
Keep in mind the paperwork you bring to your financial advisor might differ from that which you bring to your accountant, since advisors cover a broader range of personal finance topics than accountants do, according to Anastasio. “This will vary based on the type of services you are looking for and how you plan to engage with the advisor. For example, if you're planning to address your investment strategy, you may want to bring copies of your current investment statements,” she explains.
In general, though, Fanning says you should be prepared to bring information on things like your taxes, assets, insurance policies, and savings accounts.
8. What charitable causes are important to you?
The goal isn’t to determine how philanthropic they are, but to gauge what’s meaningful to them. “If there are organizations and causes in your life that are important to you and your family, sharing a similar passion with your financial advisor may uncover common values and beliefs that can contribute to a positive and sustainable relationship over time,” says Fanning.
Whether you’re planning on using your advisor for a year or two or for decades to come, coming armed to your first meeting is crucial in solidifying trust. It'll help them get a better sense of your needs, as well as make you more confident in going forward with their services.