10 Things to Ask Your Financial Advisor
Learn more about how to optimize your wealth at NDVR.com.
Choosing a financial advisor is one of the most critical decisions you'll make for your financial future. Whether you're planning for or in retirement, want to build wealth, or need something in between, the right advisor can make a significant difference in your financial well-being.??
But not all financial advisors are created equal, and it's essential to do your due diligence before entrusting someone with your financial future. In this blog, we'll explore the ten key questions you should ask your prospective personal financial advisor to ensure they're the right fit for your unique needs and long-term goals.???
Asking the right questions will help you gain clarity on their qualifications, investment philosophy, communication style, and more, ultimately pave the way for a productive and mutually beneficial advisor-client relationship. We’ll also give some insight into how we approach these questions at NDVR.?
1. Are you a fiduciary?
A fiduciary financial advisor is a professional who is legally and ethically obligated to act in the best interests of their clients. Asking your financial advisor if they are a fiduciary is an important step in ensuring that you receive the best possible financial advice and that your interests are prioritized. Fiduciary financial advisors are required to prioritize your financial well-being above their own, and their advice must reflect that- even if the advice does not benefit them or their employer financially.?
By choosing a financial advisor that is a fiduciary, you should be receiving a higher standard of advice. They must provide thorough and diligent financial advice and consider alternative options for clients to support their recommendations.?
They’re also held accountable if they fail to act in your best interest or if they breach their fiduciary duty, which provides an extra layer of protection for you and your assets. Finally, they’re required to be transparent about their fees and compensation structures, and to disclose any potential conflicts of interest to their clients. All these fiduciary requirements can help you have more peace of mind when it comes to trusting who manages your money.???
2. What credentials and certifications do you have??
Inquiring about your financial advisor’s credentials and experience is a proactive step in the due diligence process. Knowing their background can help you make a more informed decision when choosing an advisor who aligns with your financial goals, values, and requirements.??
There are many types of credentials a financial advisor can have. Here are a few you are most likely to see:??
While the designations your prospective financial advisor holds are important, make sure to understand the team they have behind them as well. NDVR financial advisors, for example, are backed by a team of quantitative Ph.D.s that conduct rigorous research and analysis, enabling our advisors to serve their clients and build portfolios designed to help achieve their unique financial goals. ?
3. What services do you offer??
Investors should ensure the services and expertise their financial advisor offers aligns with their financial goals and needs. Different advisors offer a wide range of services, from comprehensive financial planning to specialized services like investment management, retirement planning, tax optimization, real estate planning, and more.?
By knowing the services your financial advisor offers, you can work with them to tailor a financial plan that is customized to your unique situation. NDVR was founded on the premise that each portfolio should be custom-built to a client’s unique financial plan, and the first step in this process is building the holistic financial plan itself. They should also be prepared to tailor their services to your individual situation: whether it’s holistic financial planning, or a more specific financial need.??
Different services your financial advisor provides may come with different fee structures. Not only does understanding these structures help you compare financial advisors, but it also allows you to assess the cost of advice and determine whether it aligns with your budget and financial priorities. ?
For example, if you’re interested in socially responsible investing or tax-efficient strategies, it’s important to make sure your advisor offers them, and whether utilizing these strategies will incur additional charges. ?
Many financial advisors are compensated by selling affiliated funds, which could lead to increased fees and less-than-ideal advice burdened by conflicts of interest. At NDVR, our advisors aren’t compensated for selling products.?
Your financial situation will change over time, so it’s beneficial to have an advisor who can offer an array of financial planning and investment services they can tailor to your life stage, and this will ensure you have the support you need throughout your financial journey. NDVR’s Portfolio Lab? was built to allow for this kind of flexibility and is designed to make it easier for you and your advisor to make changes as life continues to happen.??
4. What is your investment strategy or investment philosophy??
Another part of the due diligence process when choosing an advisor is understanding their approach to investing. For example, some might specialize in stock picking, while others might favor mutual funds or exchange-traded funds (ETFs). Their investment philosophy should align with your financial goals and can help you assess whether it’s suitable for your investment objectives – whether that’s long-term growth, income generation, or cashflow protection. Advisors can also specialize in certain types of clients, such as high net worth investors, business owners, or retirees, for example.?
Different investing strategies also come with different levels of risk. Your financial advisor’s philosophy can help you gauge how they might handle risk and whether their approach matches your comfort level and risk capacity. Their philosophy can also give you a window into how they will diversify your investments across different asset classes to help manage these risks and enhance potential returns in the process.?
At NDVR, we make sure that every one of our clients has a clear understanding of how we view portfolio optimization and risk within our portfolios, and why we build our portfolios the way we do. This helps us educate our clients on how our strategies work, and what they can expect as they continue their financial journey.??
5. How do you measure performance??
Understanding the way your financial advisor measures performance is important when understanding the value they provide. Inquiring about performance measurement can help ensure that you and your advisor understand how success will be evaluated.? For some, performance is measured simply in terms of portfolio return, but for others (like NDVR), they also value performance in terms of your improving likelihood of reaching your financial goals and objectives.?
While it’s imperative to monitor performance, your advisor should also be adjusting your financial plan and portfolio as needed. Market volatility and unexpected life changes can often make this difficult. By employing a financial advisor that has access to advanced tech or personal finance planning tools, like NDVR, you can help ensure that these changes are handled dynamically to help strengthen the longevity and success of your portfolio. These changes are taken into consideration to help strengthen the longevity and success of your portfolio.??
6. How do you approach comprehensive financial planning??
Well-rounded and holistic financial advice is crucial when ensuring your portfolio is optimized. Knowing your financial advisor is looking at the whole picture, and not just one aspect of your plan, can give you peace of mind that nothing will slip through the cracks.??
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There are many things that make up your entire financial picture: income, expenses, investments, insurance, retirement planning, tax planning, and more. Asking your advisor about their approach can help you gauge whether they have a thorough understanding of how these things work together.?
7. How will our relationship work??
Discussing the types and frequency of your communication with your advisor, you can establish clear, upfront expectations. Some investors like to be able to contact their financial advisor whenever they’d like, while others prefer to have meetings every once in a while. Some might want to meet virtually, while others prefer to meet in-person. All appreciate responsive, dedicated service.?
Regardless of how often you prefer to communicate with your advisor, ensure you have some sort of regular check-in scheduled for updates on the progress and financial plan of your investments. This will help you stay informed about the changes in your portfolio, market conditions, or any adjustments to your plan, and help your advisor stay informed of any life changes you might be facing.?
There’s no right or wrong answer, but at NDVR, our advisors are available whenever our clients need us, while also always having regularly scheduled check-ins. We understand that every portfolio and financial plan is unique, life changes can be unexpected, and the market unpredictable. So, we make sure that we’re always there for our clients and that we give them as much transparency, availability, and control as possible.??
8. What tax-efficiency features do you offer??
Employing tax-efficient strategies in your portfolio not only helps minimize your tax burden, but the savings can compound significantly over time. Understanding what tax strategies your advisor has at their disposal can help optimize your portfolio.?
Tax-efficient strategies can be particularly beneficial for retirement income planning. By managing the tax consequences of your retirement income sources, such as Social Security, pensions, and withdrawals from individual retirement accounts (IRAs), you can maximize your after-tax income in retirement and your financial advisor should be knowledgeable on how to best do so.?
Some advisors also use tax-loss harvesting, or strategically selling investments at a loss to offset capital gains, to reduce the tax liabilities of a portfolio. There are many ways to employ tax-loss harvesting, some more efficient than others. Make sure you have a thorough understanding of how your advisor harvests losses. At NDVR we aim to minimize tax burdens for our clients by using tax-advantaged assets and owning equities directly, which allows us to automate tax-loss harvesting.??
Financial advisors can also be helpful in managing complex tax situations, like business ownership, investments in multiple countries, or significant capital gains usually in concert with your accountant or other dedicated tax professional.?
9. What are your fees? ?
Asking your financial advisor about their fee structure is a crucial step in ensuring transparency, understanding the cost of their services, and making informed financial decisions. Knowing the fees associated with your advisor’s services allows you to assess the overall cost of your financial plan or your investment portfolio and helps your budget appropriately and avoid unexpected expenses.?
You can also help avoid potential conflicts of interest when you know how your advisor is compensated. For example, if your advisor earns commissions on certain financial products, they might have an incentive to recommend those products, even if it may not align with your best interests. Other types of fee structures include fee-only (flat fee or hourly fee) and AUM-based structures.?
A key question to ask is whether your advisor is fee-only. This is a specific term describing advisors whose only source of income is directly from the client, and who are unincentivized by selling any products that earn them a commission. ?
Understanding your advisor’s fee structure gives you a clear context of the value and the services of the fees you might pay. For example, some advisors might simply manage your assets, but don’t provide holistic, comprehensive financial planning. We believe integrating your financial plan with your investments is imperative when it comes to portfolio construction, so it may be ideal to find an advisor who does both (and for a price you are comfortable with).??
NDVR advisors are experienced fee-only fiduciaries trained in various aspects of financial planning, with the goal of helping you custom-build a portfolio that is designed to achieve your financial goals. They’re also equipped with proprietary financial technology that can help you draw unique insights about your situation to paint a full financial picture.??
10. Who is your custodian??
A custodian is responsible for safeguarding and holding your investment assets, such as stocks, bonds, and mutual funds. Knowing who your custodian will be when you start working with your advisor is an important step in the due diligence process because it can help ensure that your assets are held in a secure and regulated environment.??
Custodians are typically independent third-party institutions that can provide an additional layer of oversight and verification.? Custodians work to serve you, the client (not for the advisor), providing the advisor a platform to hold and manage your assets. This very important separation between the advisor and the custodian helps protect your assets from potential misuse or fraud. Reputable custodians are subject to regulatory oversight by government agencies, such as the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA). This ensures that they must adhere to strict regulatory standards, financial strength and reporting requirements.?
Knowing who your custodian is also gives you more transparency into how your assets are managed, and where. Custodians also typically charge fees for their services, such as account maintenance fees or transaction costs, and it's an important part of understanding the fee structure associated with your investment accounts.?
Choosing the right financial advisor isn’t easy.??
While finding a trusted partner may seem like a daunting task, it’s important to have one by your side. Knowledge is your most powerful asset and can help you avoid any red flags. Understanding their approach, aligning their expertise with your objectives and making sure they offer the transparency you desire can help ensure that your financial future is in capable hands.?
An advisor-client relationship should be built on trust, communication, and shared financial goals. Your potential advisor should always have your best interest in mind. So, take the time to ask these questions and make an informed decision that sets you on the path towards financial success and a solid investment plan.?
The bottom line: your financial journey is unique, and finding the right advisor who can help you navigate it is a vital step in securing your financial well-being.
Why wait to optimize your wealth? Connect with a financial advisor today.?
Disclosure
This material is published for informational purposes only.
The views expressed and other information included are as of the date indicated and based on the data available at that time. They may change based on changes in markets, general economic conditions, rules and regulations, and other factors. NDVR does not assume any duty to update any of the views and information herein. Unless otherwise noted, views and opinions expressed are those of the authors and not necessarily those of NDVR or its affiliates.
NDVR is an investment advisor that may or may not apply the views and other information described herein when providing services to its clients. The views and information herein are not and may not be relied on in any manner as, investment, legal, tax, accounting or other advice provided by NDVR to any individual or entity or as an offer to sell or a solicitation of an offer to buy any security.
CMO for High Growth Companies | Distribution Advisor | Launched ETFs on Nasdaq and NYSE
6 个月Good advice!