12 Questions To Ask Before Hiring a Financial Advisor

I would be terrified if I were shopping for a financial advisor and I didn’t know what I know. There’s a lot of noise and bad actors in the profession that make this process naturally difficult.

Regardless, the evaluation and comparison process can be much easier if you have the right questions to ask.

Here are 12 great questions to ask a financial advisor during the interview process before you hire them.

1. Are you legally and ethically required to act in my best interest?

This question is great to ask to know what inherent protections you’re afforded when working with an advisor. If someone is legally and ethically required to act in your best interest then they are considered a fiduciary.

Simply put, if a fiduciary gives you bad advice then you can legally hold them liable for any damage caused.

But be careful, more and more advisors are calling themselves “fiduciaries” without actually being one. You may have to do a little more digging to determine if they a really are one. Don’t hesitate to get a copy of a signed fiduciary oath or some other documentation.

A quick test to rule out an advisor from being a fiduciary is if they earn commissions by selling products or if they’re affiliated with a broker-dealer.

Here’s an article that elaborates on if an advisor is a fiduciary or not.

2. What are your qualifications and credentials?

It’s important to know that a potential advisor has the credentials or qualifications that displays their competency and expertise.

Most of the time it won’t be very hard to find an advisor’s credentials or qualifications because it’s great to market your expertise and credentials.

Regardless, don’t hesitate to ask what someone’s qualifications and credentials are AND don’t forget to do a background check to verify.

3. How long have you worked in the profession?

This is a great question to see how much experience someone has in this profession. However, be careful because time in the profession doesn’t always equate to “experience” in financial planning.

For example, young advisors can have very little time in the profession but significant financial planning experience if an older advisor/mentor has allowed them that much.

Likewise is true, just because someone has been in the profession a long time doesn’t mean that all of that time has been attributed to financial planning.

A better follow up question may be, “How long have you been practicing financial planning WITH clients?”

4. Do you have a disciplinary history?

This is a great question to ask because it’s also an integrity litmus test. You can do a background check on someone’s disciplinary history whenever you want by visiting the SEC Investment Advisor Public Disclosure website or FINRA’s Broker Check.

Asking this question allows an advisor to come clean about their history and explain anything that’s happened in the past.

A variety of things can show up on someone’s disciplinary history so take it with a grain of salt (i.e. more scrutiny may be on disciplinary history around financial crimes).

5. How are you compensated and are you compensated in multiple ways?

It’s always important to know how an advisor receives their compensation. It can tell you a lot about how they are aligned, or not aligned, to provide you financial advice.

If they say, “You don’t pay me anything” then you need to run because they will likely be trying to sell you a financial product that earns them a commission from one of the companies they serve.

Fee-only advisors are the best route to go for conflict-free advice. However, conflicts can still exist with fee-only advisors BUT a fee-only advisor that’s a fiduciary should be avoiding conflicts of interest where possible AND disclosing them when needed.

Finally, there are varying ways to pay an advisor (e.g. flat fee, AUM, etc.) so it’s important to know which way an advisor charges and if it’s acceptable for you.

6. Do you receive any commissions or kickbacks?

It’s important to know if an advisor receives commissions or kickbacks for what they do. This helps inform you if this is the right path to go in working with an advisor.

Beware that advisors may have other arrangements in place where they get compensated for steering you towards other services, providers, solutions, etc.

I’ve already mentioned that brokers (those that earn commissions) have inherent conflicts of interest because their compensation is tied to selling a product is likely not in your best interest.

7. What are your fees?

Everything has a price, including financial advice. This question should be able to be answered clearly and concisely by an advisor. If they are fumbling over the cost or can’t “quote” you a fee then that is a red flag.

Many advisors have even begun putting their fees on their website for easy access.

Speaking from an advisor’s point of view, we put fees on our website for full transparency BUT also realize that prospects may not reach out simply based on the price of our services. Or in other words, prospects fail to take value provided into consideration when looking for an advisor.

Warren Buffet was coined with saying, “Price is what you pay. Value is what you get."

Some advisors may not put fees on their website so they can educate prospects on the total value they provide AND THEN quote/present a price.

8. What services will I receive for what I pay for?

This goes back to what value you can expect for what you’re paying. Advisors should be able to clearly articulate the services you’ll receive, how often you’ll meet, and everything else that’s included for the fee you would pay.

Having a proper expectation of service is key when hiring an advisor.

9. Who is your typical client? (Who do you do your best work for?)

This is a great question to see if an advisor is particularly suited to serve you. You belong to a specific niche which means you have a set of very specific needs and complexities. You want an advisor that is specialized to give advice to your niche.

This is so you can reap the most value for what you’re paying.

You’ll likely want to avoid an advisor that’s a “generalist” if at all possible. This unless you have a very basic needs or require very basic service.

Remember, the more general the advisor the more general the advice.

10. How many clients do you serve?

Asking this question is a great way to check an advisor’s capacity for serving existing and new clients.

“Dunbar’s Number” gives some insight in how many relationships the average person can handle.

Wikipedia describes Dunbar’s number as this,

“Dunbar's number is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships—relationships in which an individual knows who each person is and how each person relates to every other person. This number was first proposed in the 1990s by British anthropologist Robin Dunbar, who found a correlation between primate brain size and average social group size. By using the average human brain size and extrapolating from the results of primates, he proposed that humans can comfortably maintain 150 stable relationships.”

In short, the more relationships an advisor has the less connected and engaged that they’ll be able to be with you in the relationships.

So if you don’t want to feel like just another “number” or “client” then you may benefit from working with an advisor with fewer relationships.

11. What is your investment philosophy?

Every advisor handles investments a little different. It’s an important part of the financial planning process and building wealth in general.

However, an advisor’s philosophy can give you some insight on how they operate, how they spend their time, what you can expect, and more.

For example, some advisors are more “active” in their investment approach and spend a significant amount of time picking funds, timing the market, and trying to maximize returns.

Other advisors may be more “passive” in their approach and realize that they can’t time the market or pick the “winners”.

The latter may be focused on investing in index funds, or broad market funds, and spending the remaining time with clients on planning and controlling the things that can be controlled.

Find an advisor that has a philosophy that aligns with what you value.

12. If I work with your firm, will I be working directly with you?

As a potential client, it’s important to know who exactly you’ll be working with MOST of the time.

By asking this question you can avoid the potential bad taste of being “baited and switched” when it comes to the lead advisor that works with you.

There you have it, a great bank of questions to ask potential advisors when you’re ready to start shopping around.

Again, this isn’t an exhaustive list so if you find more great questions don’t hesitate to add them to your mix of questions.

Finally, be sure to interview at least 3 advisors when you begin looking to give yourself a sense of what’s out there.

Good luck!