Here I am listing four important questions to ask your next financial advisor

As we head into the end of the year 2020, investors start thinking about whether or not their money is in the best possible hands. This frequently leads to conversations with new financial advisors.

If you're one of the investors who are currently in the process of rethinking your advisor relationship, you should be aware that there are four questions you have the right to have answered by whoever is going to be investing your money and planning your financial future. 

Here is the 1st question:

How do you get paid? 

How your financial advisor is compensated is going to have a major say on both the standard of care and attention you receive as well as the quality of the various recommendations they make.

Are you the only one paying your advisor or is there an asset management company also paying them to promote their funds? If you're not the only player, there is a guaranteed conflict, and how this conflict is disclosed, resolved, or mitigated matters.

The next important question is:

When do you get paid? 

In the past financial advisors were often compensated like stockbrokers. They earned a commission every time their clients bought or sold a stock, share or a bond. They'd also earn selling concessions for placing new issues like IPOs and closed-end funds in their clients' accounts. They'd get trailing commissions from certain types of mutual funds, but usually, their commissions were extracted from your fund purchase upfront, right off the top.

There is a sea change to all of these. Commissions are practically zero now across the industry, which has reduced the advisor's incentive to encourage with portfolio recommendations and transactions. Nearly all financial professionals serving HNIs have since migrated to a fee-based business model, charging a quarterly fee based on the value of their clients' investment accounts. You should know when you're being charged, whether quarterly or upon the completion of a meeting, as well as how much you're paying.

Here is the third question:

What am I getting for the money?

Some financial advisors are mainly focused on asset management, picking stocks, bonds, and funds under the auspices of being able to beat the market and offer their clients a superior return. Unfortunately, there has been a shift under their feet in recent times as the general public has become better informed about how difficult it is for even the best money managers to reliably beat a given index. They've also become more educated about the detrimental effects of excess trading costs and taxes. Engaging a financial advisor in the 2020s is more likely to involve having a professionally designed financial plan and investment policy statement to guide the portfolio construction process.

No matter what you're paying your financial advisor, they should have some idea about why you're investing, when you plan to use the money and what other risk factors in your life and career are relevant.

Fourth question:

What else will you be doing for me? 

Many financial advisors in the modern times have been bolting additional services onto their practices. These services, which are often incidental or adjacent to investing, include tax planning and tax preparation, trusts and estate planning, succession planning, insurance, and corporate retirement plans, financial education for younger generation, charitable funding and administration, lending and lines of credit, and even wellness and emotional counseling. You should not only ask your financial advisor if they offer these services but, if not, then why?

By asking the above four questions you'll have a very good starting point in your search for the right advisor for you, your family, and your current situation. And if they're unable to answer any of these questions with integrity, you'll have eliminated an advisory firm right off the bat and saved yourself a lot of time.