There are 263,000 financial advisors in the United States. In a lot of ways, each one is different. While many may share investment philosophy, credentials, fee structure and other attributes, there are a number of other factors that make a financial advisor “right for you.” You are trusting this firm or person with your financial wellbeing, so it’s important to ensure that you feel 100% confident in the financial planner you are hiring.

When you go into your first meeting with a financial advisor, it may be intimidating. Many people don’t know what documents to bring (link), background information to give the advisor and most importantly, what questions to ask. In this article, we’ll go through some of the key pieces of information that you should be leaving with after your first meeting with a wealth management professional.

Note: some of these are obvious, but important questions. Others are questions that a financial advisor may not get asked every day. Those questions aren’t meant to put the wealth manager on the spot. Rather, they will give you a sense of how they respond when you ask them difficult questions, since that may be a part of your relationship dynamic in the future.

Questions to ask a financial advisor in your first meeting: 

How do you get paid?

There are two distinct ways advisors can be compensated: Fee-based versus fee-only. They sound almost too similar but here is the difference: 

Fee-based advisors are compensated with commissions and fees. These advisors often sell products such as insurance, load-mutual funds, or structured products. 

Fee-only advisors are only compensated by what they bill clients directly. They do not charge commissions. Fee-only advisors may charge an hourly rate or an annual flat fee. Most commonly they charge a percentage of assets under management. This means you pay less when your portfolio loses value and you pay more as it gains value.

The fee-based model used to be more prevalent as it allowed advisory firms to charge more with commissions. The industry is now shifting to provide more transparency and the fee-only model has become more popular with both advisors and clients. 

Are you a fiduciary?

Advisors used to only be held to a “suitability” standard – meaning they simply had to recommend investments that were suitable for your risk tolerance, objective, and time horizon. This suitability standard did not prevent advisors from recommending high-cost or commission-based products that increased the advisor’s compensation.

In contrast, a fiduciary advisor is held to a fiduciary standard. This means they are legally obligated to make recommendations that are in your best interest. This typically results in the advisor recommending lower-cost investments since costs have a dramatic effect on results over time. 

Make sure the advisor answers directly that they’re a fiduciary. Answers like “of course I will always act in your best interest” doesn’t necessarily mean that they are a fiduciary. Consider asking them to sign a fiduciary oath to give yourself additional assurance. You can view an example oath here.

What type of clients do you serve?

Some advisors try to serve anyone and everyone instead of specializing in a select group. This can lead to clients achieving modest results for clients instead of great results. It’s important to know that your advisor has expertise and experience working with clients in your situation. If a wealth manager typically works with young professionals and you are nearing retirement, it may not be the best fit. If their median client has $250,000 and you have over $1 million, it’s important to understand how they would help you versus an advisor who focuses on high-net-worth clients. 

Obviously, advisors can be successful with several different types of clients. It’s important that your prospective advisor communicates a very clear plan for how they’ll help in your situation and that their plan makes more sense than the alternatives. 

What are my all-in costs?

This is a straightforward question. An advisor should be able to give you a very clear sense of what you’ll pay. If not, it’s probably not the right fit. Keep in mind, advisors have the ability to cover the cost of trading commissions charged by the brokerage firm. Is the advisor willing to do this? If not, why not? Also, ensure that the planner is accounting for all the line items and ask about any costs that you may not directly see in your invoices.

An advisor should be able to give you a very clear sense of what you’ll pay. If not, it’s probably not the right fit.

What are your qualifications?

The gold standard for advisors today is the Certified Financial Planner® (CFP®) designation. The CFP title means that the planner has taken (and continues to take) financial planning courses, follows ethics standards, has over 6,000 hours of professional financial planning experience and has passed the CFP® exam. This should be your minimum requirement when selecting a financial planner. The CFA (Chartered Financial Analyst) is another great designation. It focuses more on investment analysis and portfolio management than financial planning. 

How long has the advisor been in the industry? How many clients have they served and how much money have they managed for clients?

Do you have any disclosures on your ADV?

Regulation requires that advisors who’ve had a client complaint or criminal charge disclose these items to prospective clients. All advisory firms have a form ADV which describes their services, fees, as well as disclosures if they have any. Obviously it’s best to have an advisor with a clean history. If they have disclosures, it’s very important to understand how serious they were and what the result was. If the advisor has multiple disclosures and has a pattern of client complaints or criminal charges, you’re probably best served with a different advisor. 

You can view an advisor’s disclosure history on the SEC’s government website by searching for their name. The web address is: https://adviserinfo.sec.gov/ 

How will we communicate with each other? 

One of the main reasons that people become unsatisfied with their advisor is that they feel they don’t have sufficient communication with their advisor. You may be comfortable with an annual meeting, or just keeping an eye on your portfolio from afar. However, you may want to be able to pick up the phone and ask questions at any time.

Ask how they prefer to communicate (phone, email, text message, video conference, etc.). Ask how often they expect to meet with you in person. Will they be proactive in reaching out to you? Ask how much communication is too much. Let them know your expectations and make sure that this is something they feel comfortable committing to. This is not only beneficial for you, but it also helps the advisor to know what your expectations are so you can both ensure that it’s the right fit.

What is your investment philosophy?

There are two main philosophies when it comes to how to invest in stocks. The first is called “passive investing”. This means that you invest a little bit in all 4,000 stocks, and keep your fees very low (about 0.03% per year). Investors who use this philosophy have earned 10% annual returns for the past 55 years. This return doubles your money every seven years. They earned those returns because that’s what those 4,000 stocks produced as a group. The reason it’s called passive investing is because you’re owning all US stocks instead of picking and choosing individual ones.

The second philosophy is called “active investing”. This means you’re trying to get better returns than the group of 4,000 stocks by carefully selecting a smaller amount of individual stocks. You might own 30 to 50 stocks instead of 4,000. The hope is that those thirty stocks will perform better than the 10% annual returns that passive investors are getting. It’s important to note that managers charge much higher fees for active management.

Don’t be afraid to spend some time on this and dive deeper. If they are an active manager, do they have a track record that demonstrates they can earn better returns than passive investing? If not, this is a red flag. It’s also important to know that 9/10 advisors don’t have a track record that outperforms the market. Given that, they might try to talk their way out of this question instead of showing you their results.

Ask them to explain any parts of it that you don’t understand. Ask how they formed the opinions and beliefs that they have. Make sure that you leave this topic with a strong understanding of how they are approaching investing. You can take some time and decide later if this is the right philosophy for you.

What type of returns should I expect?

Historically, the stock market has returned 10% per year with dividends being reinvested. Most advisors expect future returns to be lower than 10%. If the advisor is expecting higher returns, it’s important to understand why and that they can back up their claim. 

Keep an eye out for overpromising. This isn’t a contest to see which financial advisor promises you the highest returns. Quite the opposite. Look for a wealth manager that is realistic. One that will warn you of the potential downside, educate you about market cycles and take a long-term view of your financial future. The most important factor in their answer is your comfort level with their honesty and transparency. 

How will your investment strategy impact my taxes? 

This is an often overlooked, but very important question. It’s easy to focus on the returns that your portfolio is achieving. However, the way that those returns are achieved is not always equal. Understanding how your CFP® will allocate your funds and what tax strategies they use will be critical in keeping as much money in your pocket as you can. We can’t control the markets, but we can control how much we pay in taxes and fees.

Note that active investing strategies (picking individual stocks based) by definition creates more turnover than a passive strategy. More turnover means higher taxes. If your advisor wants to use an active strategy, they also have to overcome the additional taxes you’ll pay to make it worthwhile. This is a very difficult task that few are able to achieve.

Will you work with my CPA or attorney?

When it comes to tax planning and estate planning, it’s important that this is a team effort. If you have an attorney and/or CPA that you work with on the other pieces of your financial puzzle, ask questions to understand how your advisor will be a part of that team.

Look to understand their process for how they’ll communicate, what they’ll communicate, and when. 

How will I track my investment performance?

Understanding what type of reports you will get, what access you have to all of your accounts and how your performance will be tracked is important. Ask to see examples of where exactly you will be monitoring your portfolio and ensure that you understand what you are looking at. Even if you prefer to be hands-off, it’s important to know that you can find the information when you need it. Always request that your performance be shown net of fees. 

What is the main reason that clients have left you in the past?

This is a question that many people are uncomfortable asking. You shouldn’t be.

While the actual answer is going to be informative, it’s likely going to be one that paints the investment advisor in a relatively positive light. Watch for whether they blame the past clients or take accountability for the relationship. If they point all of the blame on the client, it may be a red flag. Answers like “clients don’t understand…” or “some clients are too needy” or anything that doesn’t show a spirit of collaboration with clients should trigger you to dive deeper.

How do you judge your personal success?

There are no right or wrong answers here, but this is a good way to understand if your advisor shares the same values as you. Maybe making as much money as possible is the answer. Maybe providing peace of mind and security for their clients is what brings them fulfillment. Perhaps it’s the personal relationships that they can forge with their clients. Understanding their motivation and ensuring that it aligns with yours is a good foundation to start with.

Why should I pick you over other advisors?

Does the advisor offer the benefits that are important for you? If they can’t provide a genuine answer that is specific to you, they may not be the best option for you.