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A classic strategy is to contain the gains in a “1031 exchange,” in which you roll the capital gains from one property immediately into another, ...
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Your best bet for getting in on commercial real estate at the entry level is through a REIT that is publicly traded. Another way to wade in is through online platforms like Fundrise, that enable individuals to buy a sliver of a startup company or real estate investment. Always <anchor>consult with your advisor</anchor> before investing, and always read the disclosure and prospectus for any investment.
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# 10 questions to ask when choosing a financial advisor

By

Rocco Pendola

CNN Underscored Money

Updated 5:01 AM EDT, Mon June 3, 2024

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Even though we live in the age of commission-free trading and endless free research, you might still need or want a financial advisor.

A good financial advisor can help you avoid the pitfalls of modern-day investing. A competent financial pro will willingly answer your questions with clarity and confidence so you can start your relationship off on the right foot.

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Before diving into the information these questions will get you, here are the 10 questions to ask a financial advisor before hiring one:

1. What are your qualifications?
2. Are you a fiduciary?
3. How much am I likely to pay?
4. Can I call you any time for advice?
5. What is your investment philosophy?
6. What asset allocation will you use?
7. Do you offer robo-advisor services or access to new technologies?
8. How often do I need to review and update my financial plan?
9. Do you have many clients like me?
10. How am I protected in the event of things going wrong?

## Questions to assess their qualifications

It’s best to vet the financial professionals you’re looking at before you contact them.

You can search for individual names and firms via the Securities and Exchange Commission’s(SEC) investment advisor search tool. Qualified financial advisors typically have initials after their names. Use the Financial Industry Regulatory Authority’s (FINRA) professional designation database to make sense of these letters.

Match the information you find to the answers you receive to your first question:

1. What are your qualifications?

Two of the most common designations you’ll come across are CFP, which stands for certified financial planner, and CFA, which is shorthand for chartered financial analyst. FINRA lists the education, certification and other requirements for these and all other designations.

Meeting the minimum requirements to be registered is one thing. Going above and beyond is another. Some financial advisors have additional education or multiple designations that can set them apart from others.

For example, out of the 200 or so possible designations, a CFP might also be a certified public accountant (CPA) or have special training focused on retirement, 401(k) plans or insurance. While a CFP must have a bachelor’s degree and 6,000 hours of personal financial planning experience, it isn’t uncommon for them to carry a master’s degree or PhD in areas such as business, finance and economics. In terms of requirements, a CFA designation sits just below CFP. While the letters after an advisor’s name absolutely matter, ask about additional training and education, and focus on the number of years of experience with clients, particularly clients like you.

Closely related to qualifications, it’s important to ask:

2. Are you a fiduciary?

A fiduciary considers only the best interests of their clients. This differs from non-fiduciary financial advisors, who don’t have an obligation to provide the lowest cost or best-fit investment options for clients. These types of advisors may have conflicts of interest due to compensation arrangements associated with investments they recommend. While it’s not illegal to have conflicts of interest, financial advisors must disclose them to their clients.

## Questions to understand cost and payment structures

Clear up confusion about an advisor’s motives by adding this question to your list:

3. How much am I likely to pay?

Financial advisors can get paid in many ways, most notably fees and commissions. The National Association of Personal Financial Advisors (NAPFA) recommends “fee-only” advisors, as it ensures that your financial planner acts as a fiduciary.

“Fee-only planners are compensated directly by their clients for advice, plan implementation and for the ongoing management of assets,” according to NAPFA. “Fee-only financial advisors may be paid hourly, as a retainer, as a percentage of assets (AUM) or as a flat fee, depending upon the planner you choose.”

Full or partial commission-based pay structures can create conflicts of interest. So it’s best to avoid this dynamic. When you ask about costs, you should receive a concise answer with a precise number based on a flat fee, time or percentage of your assets. If your advisor pushes certain products, such as alternative investments, life insurance or annuities, put your guard up and clarify their rationale and intentions before moving forward.

## Questions on communication

To this end, be straightforward and ask:

4. Can I call you any time for advice?

You’ll want to know that you can reach your financial advisor at any time — within reason — if you have questions or concerns.

If stocks tank, you should be able to get your advisor on a call for reassurance or to discuss your options. If a major event takes place — or is about to — in your life, you don’t want to wait weeks before getting in touch and adjusting your strategy.

Modes of communication are also important. Do you have to get through assistants or schedule an appointment to get your advisor on your phone? While this isn’t necessarily a bad thing, it’s potentially less attractive than being able to contact your advisor directly — by phone, email and even text message — and receive a prompt reply, particularly during normal business hours.

Also, ensure that your financial advisor includes their time in the fee they charge. In addition to their time, be clear on the costs associated with services, such as tax or estate planning, which you might need later.

## Questions to understand investment strategies and options

If you’re happy with the answers you’ve received so far, dig deeper on investment philosophy with these three questions:

5. What is your investment philosophy?

6. What asset allocation will you use?

7. Do you offer robo-advisor services or access to new technologies?

You might be going with a financial advisor to avoid the aforementioned pitfalls of modern-day investing. With zero commissions and an abundance of information, it’s easy to over-trade, misuse technology or simply get freaked out when the market goes down.

A good financial advisor can succinctly and confidently tell you their investment philosophy. It’s their job to help you see the big picture and stay the course. However, the chosen path must make sense.

Do they believe in buy-and-hold investing? As in: Do they advocate buying stocks and other assets with the intent to hold them for the long term, through market fluctuations, to generate returns in anticipation of events such as retirement? Do they favor certain stocks? Do they use exchange-traded funds (ETFs)? Most importantly, do they have the knowledge and ability to tailor their favored approach to your situation? Will they create an asset allocation (in other words, a mix of stocks, bonds and cash) appropriate for your age and short- and long-term needs, goals and desires? To this end, do they truly understand the complexity of and how to create a diversified portfolio designed to weather weakness in a specific set of investments or the overall market?

Investing has never been more accessible. But it can also be confusing. In a world where we have automated everything with algorithms and artificial intelligence, it’s important to know that your financial advisor is up on the latest technology. Are they students of their craft, who can appropriately and effectively use — and know when to take or leave — the latest and greatest investing innovation? Will they use a robo-advisor to help create your portfolio? If so, and if you’re OK with this, ask if your financial advisor’s firm uses in-house technology or simply utilizes an existing, popular robo-advisor that you can easily access on your own.

Depending on your needs, preferences and comfort level with money, your relationship with your financial advisor might go beyond investing for long-term goals. While it can include short-term trading, particularly if you’re an active participant in the stock market, it could also include banking and cash management.

Ensure your advisor includes this as part of your plan. Will they ensure that you have enough liquid cash or readily and easily accessible investments to deal with your ongoing expenses, day-to-day life, short-term goals and emergencies? Do they have experience with high-yield savings accounts, certificates of deposit (CDs) and cash management accounts where you can park money as you wait for investment opportunities?

## Questions on investment performance and strategy updates

If you’re happy with their answers so far, the next couple of points might become questions to ask your financial advisor:

8. How often do I need to review and update my financial plan?

If you’ve found your person, you’ll want to know how often they will meet with you to review your investment strategy.

In these meetings, a well-prepared and competent financial advisor will share your return on investment and relay progress toward your goals.

For example, you might have questions to ask a financial advisor about retirement. If your goal is to have $1 million by age 65, the tracking, reviewing and updating process should include where you stand, how likely you are to reach your goals and any changes to asset allocation or specific investments to ensure success.

According to Scott Salaske, financial advisor and CEO of Firstmetric, a good professional should “create a ‘baseline’ financial plan,” either from nothing or what you already have when you begin your relationship. Salaske said the plan you and your advisor create “should be reviewed when any significant financial and/or personal changes occur in your life so you … can evaluate if the financial plan needs to be adjusted.” He suggested talking with your financial advisor “at least on an annual basis” to discuss changes and “to make sure nothing was overlooked” that can impact achieving your long-term goals.

Establish a standard early in your vetting process. Aim for a minimum of an annual face-to-face meeting in person or, yes, on a video chat platform, such as Zoom. FMG, a marketing platform exclusively for financial advisors, suggests advisors send weekly or monthly newsletters to clients.

## Finding the right advisor for you

This is perhaps the most powerful question to ask financial advisors:

9. Do you have many clients like me?

If you need a lawyer to plan your estate, you’re not going to go with an entertainment or copyright attorney.

Do likewise with financial advisors. If you’re young and aggressive, ask about the typical age and investment style of the bulk of an advisor’s clients. If you’re focused on long-term capital preservation and income generation, a financial advisor who specializes in retirement planning might be your best bet.

Salaske called this “a very important question to ask a financial advisor you are considering working with” because “most financial advisors try to be all things to all people, and often this can impact the level of services that they may provide and/or their expertise that you may require given your financial situation.”

Align your place in life (e.g., early career, mid-life, entering or in retirement) with an advisor who specializes in dealing with clients in similar situations. Salaske said you should avoid the jack-of-all-trades type: “Without client-focused expertise, then you end up with a mediocre financial advisor trying to be all things to all people and master of none.”

## Questions on trust and security

Don’t settle on a financial advisor until you’ve asked:

10. How am I protected in the event of things going wrong?

As the Consumer Financial Protection Bureau (CFPB) points out, “It’s up to you to look closely at the training, background and quality of service when picking someone who promises to help you protect and grow your well-earned nest egg.”

Investments sometimes lose money. It’s up to you and your financial advisor to agree on an appropriate plan that aligns with your aversion to risk. Ask financial advisors to tell you about their past performance, but don’t rely on it, because it’s not necessarily a predictor of future results.

Some financial advisors have been known to commit fraud. Take your time with due diligence. Ask family, friends and colleagues for recommendations.

Don’t forget about cybersecurity. According to the Certified Financial Planner Board of Standards, financial advisors and their firms must safeguard against data breaches. “As part of its Code of Ethics and Standards of Conduct, CFP Board requires reasonable steps to protect security of non-public client information stored electronically … and regulators such as the SEC and FINRA have released their own guidance on cybersecurity,” according to CFP Board. “Financial planners can no longer reactively respond to cybersecurity incidents; they must proactively protect the data of their firms and their clients.”

The SEC has delayed implementation of new cybersecurity standards for public companies, investment advisors and funds. A final ruling appears imminent. However, you can assess a firm’s cybersecurity standards by asking if they are preparing to adhere to the SEC’s updated guidance or have already done so. In addition, ask your financial advisor about FINRA’s checklist for small firms and broad cybersecurity guidelines. Firms that are serious about cybersecurity should be ready with answers that align with SEC and FINRA rules and regulations as well as details on their own protocols for cybersecurity.

## Frequently asked questions (FAQs)

Can I trust my financial advisor?

As with any relationship, you take a chance going in based on your best assessment of the situation. By using the SEC and FINRA tools and asking the right questions, you’re doing more than most to safeguard your money. Trust is earned, not given, so keep appropriate tabs on your money — and your advisor — to ensure your personal financial ducks remain in a row.

What legal or regulatory recourse do I have if I run into a problem with my financial advisor?

Losing money doesn’t mean you have a legitimate reason to take action against a financial advisor. However, if you believe a financial advisor lied to you, misrepresented their qualifications, put you in investments not suitable for your age and life situation or committed negligence or, worse yet, fraud, you might have a case.

First, attempt to resolve the dispute with the advisor and their firm. If that gets you nowhere, you can sue your financial advisor. You can also file disputes with the SEC or FINRA. Generally, the SEC deals with investment advisors, whereas FINRA handles broker-dealers. Broker-dealers are registered financial professionals, more commonly known as brokers or stockbrokers, who buy and sell securities for their clients, their own accounts or both.

These agencies can determine next steps, which might involve going to arbitration or filing a complaint with another federal or state entity. It’s important to understand that the burden of proof ultimately falls on you and your legal representation.

Is there a minimum investment required to work with a financial advisor?

It depends on the advisor or investment firm. Some have no minimum required. Others require assets that can reach six figures or higher.

What happens to my investments if my financial advisor changes firms or retires?

Good question. AARP suggests asking your financial advisor about a succession plan. Ask to interview other advisors at the same firm in the event of a retirement.

Can I terminate my relationship with a financial advisor if I'm not satisfied?

Yes. Most of the time you can simply notify them in writing. However, before you sign on with a firm, read the fine print. Though rare, some financial advisors include termination fees in the event that you want to make a switch.

Editorial Disclaimer: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines, hotel chain, or other commercial entity and have not been reviewed, approved or otherwise endorsed by any of such entities.

This content is for educational purposes only and is not intended and should not be understood to constitute financial, investment, insurance or legal advice. All individuals are encouraged to seek advice from a qualified financial professional before making any financial, insurance or investment decisions.

Note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed or may no longer be available.

What is in this guide?

- Questions to assess their qualifications

- Questions to understand cost and payment structures

- Questions on communication

- Questions to understand investment strategies and options

- Questions on investment performance and strategy updates

- Finding the right advisor for you

- Questions on trust and security

- Frequently asked questions (FAQs)

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