12 Questions to Ask Prospective Advisors

Make sure your advisor’s services match your needs.

Typical advisory services include financial planning (covering college and retirement planning), insurance analysis, tax guidance, investment management and estate planning. But many advisors handle only one or two of these areas. If you need services beyond what your advisor provides, ask whether they will help coordinate those services or whether you’ll need to manage that yourself.

You should also ask about documentation and record-keeping. Will the advisor handle the paperwork you need for tax preparation? How often will you receive account statements? Can you access your accounts online at any time? If the advisor issues performance reports, ask whether they conform to the Global Investment Performance Standards – the industry benchmark for calculating and reporting results accurately.

Only Registered Investment Advisors are required to serve as fiduciaries – meaning, serve your best interests. Those licensed only as stockbrokers or insurance agents are not held to this standard.

Stockbrokers and insurance agents legally represent their firms. They may recommend products that are suitable for you without those products being the best option available. An Investment Advisor Representative, by contrast, is legally required to serve your best interests – full stop. Asking whether your candidate is a fiduciary, and in what capacity, cuts through all the titles and designations and gets to the most important legal question: who does this person actually work for?

Ask to see Form ADV. If they can’t produce it, they are not a Registered Investment Advisor. You can verify registration at adviserinfo.sec.gov.

In addition to learning whether you’ll pay fees, commissions (or both), ask if the practitioner earns any compensation from third parties. Such “soft dollar” or “third-party” payments should be disclosed.

Many practitioners hold multiple licenses and earn income in multiple ways. In addition to direct fees and commissions, fund companies, insurance carriers, wrap account sponsors and others sometimes pay advisors extra compensation for recommending their products – in the form of cash, software, event tickets or other benefits. A complete picture of how your advisor is compensated is essential to understanding where their incentives lie.

Get complete disclosure about the total costs you will pay to implement the recommendations that your advisor will give you. Get this disclosure in writing before you hire the advisor or invest any money.

Ask specifically about account setup fees, annual maintenance fees, transfer fees and any termination charges. If you open an IRA, for example, will there be a setup cost? A fee when you close the account or move money to a different custodian? Many brokerage firms and insurance companies charge fees that clients never think to ask about – until they appear on a statement. Written disclosure of all costs, obtained before you commit, protects you from surprises later.

Ask the advisor to describe the philosophy that guides their investment approach, and how they developed it. Ask how long the approach has been in place – a recently adopted approach is a concern about stability in the practice.

If the advisor has a formal approach, find out whether they developed it alone or whether the firm has an Investment Committee operating under established policies and protocols. How long has the current methodology been in place? An approach adopted in the last year or two carries less weight than one that has been tested across different market conditions.

You can also learn a great deal by asking how the advisor’s practice looked before, during and after a significant market downturn. What were they recommending in the years leading up to the disruption? How did they handle the volatility? How many of their clients from that period are still with them today? Turnover in the client base tells you more than any reference call ever could.

Ask the candidate how they handle occasions when on vacation – or in the hospital and even the morgue. You want to know that others in the firm can serve you.

This question isn’t only about emergencies. It covers the everyday reality of vacations, illness and unanticipated absences. A solo practitioner with no staff or backup may leave you with no one to call if you need help quickly – including accessing funds in an urgent situation. Ask whether other advisors in the firm know your account and are authorized to execute transactions on your behalf. Knowing that someone will answer the phone is one thing. Knowing that someone can actually help you is another.

Succession planning matters too. Ask how long the advisor plans to remain in this field and what happens to your account if they retire, sell their practice or are no longer able to work. A thoughtful advisor will have a written succession plan in place. Ask to understand it – including who specifically would take over and how the transition would work. You shouldn’t have to start over with a stranger because your advisor didn’t plan ahead.

Do not tell the candidates about yourself right away. Instead, ask them to describe their typical clients. If they describe you, it could be a good match. If they describe someone quite different, you could be out of place. If you have $50,000 to invest, you don’t want an advisor who works primarily with multimillionaires. Likewise, if you have $10 million and the advisor works mostly with assets of fifty grand, the advisor may not have the expertise you require.

You want an advisor who has extensive experience working with people just like you. Ask specifically about the investment amounts their typical clients bring. A mismatch in either direction – you having significantly more or significantly less than their usual client – can mean you won’t get the level of attention or expertise your situation calls for.

Don’t assume age translates to experience. Many stockbrokers, insurance agents, investment advisors and financial planners are career-changers, and their gray hair belies the fact that they’ve been in the field only a year or two.

Ask specifically how long they have been practicing in financial services – not in their previous career. Don’t be hesitant to press for clarity if the answer is vague. Length of experience in this specific field matters, and a candidate who has been in the industry for only a few years carries a different risk profile than one who has navigated multiple market cycles with clients.

If the advisor works alone, then you’re paying for your advisor to do administrative tasks. You want an advisor who operates in a professional environment, not a solo practitioner who must do everything. An effective advisory practice will have at least one staff member for every advisor.

You should also ask whether the firm conducts background checks on all staff members before hiring them. Your advisor will have access to your Social Security Number, bank account information, investment records and insurance policies – and so will their support staff. Checking criminal records and credit histories isn’t an optional courtesy; it’s a basic standard for protecting your financial information and identity.

Investigate advisors and their firms at adviserinfo.sec.gov and brokercheck.finra.org.

Don’t hesitate to ask this question directly, and don’t stop there. Every legitimate practitioner holds at least one FINRA or state insurance license, which makes it straightforward to verify their background with regulators. Look for complaints, disciplinary actions and fines. Make a habit of checking every few years, not just at the time of hiring. People’s circumstances change, and a clean record at the start of the relationship doesn’t guarantee a clean record today.

Advisors either talk about their fascination with investments, economics, financial planning and other numbers-oriented topics, or they talk about their fascination with people and how the dynamics of family relationships, emotions, attitudes and desires interact with effective financial decision-making.

Decide if you prefer to work with an advisor who is more interested in the markets or in how you will interact with the markets. Neither orientation is wrong – but the two produce very different working relationships. Consider which fits better with how you think about money and what kind of guidance you’re looking for.

The answer should be a reflection of the advisor’s skills and abilities, with an emphasis on how they can help you. Beware any candidate who treats this question as an opportunity to disparage others. True professionals do not need to diminish the competition to make themselves shine.

When the interview is finished, ask yourself one more question – this one privately: do you like this person? Personal rapport matters more than it might seem. You may be working with this advisor for decades, and a relationship built on trust and genuine communication is worth more than credentials alone.