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Hard Ball Questions to Ask Your Advisor

A Google search for “Questions to Ask Your Financial Advisor” will yield an abundance of articles ranging from exhaustive to utter nonsense.  The below list is a combination of questions clients have asked us over the course of our careers (or questions we would ask given our knowledge of the investment management industry).  We are serving up 100 mph heat rather than floating softballs your advisor can knock out of the park.

Are you a fiduciary?  Put another way, do you serve yourself or your clients?

With the media attention around the Fiduciary Rule, it’s amazing that investors would still allocate their hard-earned money with salespeople/brokers that place their own interests ahead of their clients. 

Do you use mutual funds?

Evidence based investing would indicate plugging a client into an all mutual fund portfolio doesn’t work (SPIVA U.S. Scorecard: >92% of US managers did not beat their benchmark over the past 15 years).  Yet, plenty of financial advisors outsource the investing by using mutual funds.  What the advisor is saying…“I’m not an investor…I get paid to gather assets and sell.”

How are you compensated?  Do sales goals drive your recommendations & behavior?

Understanding what percentage of compensation is fixed vs. sales based is extremely important.  Why would you hire a financial advisor to go out and chase the next deal?

Do you have regular sales meetings? 

Meticulously tracking revenue targets, product sales, and cross selling encourages a culture of asset gathering.  Clients should be viewed as a sacred relationship not a source of revenue.

What financial designations do you hold? 

Not all designations are created equal.  The Paladin Registry (check your advisors credential) offers a comprehensive review of financial designations including requirements, standards, difficulty, and prestige.  In our opinion, the CFA Instituteleads the way for raising the professional standards within the investment management industry.


Do you have any (public) commentary I can access?

This is a great way to gather insight on the investment philosophy of your advisor.  If commentary is not available, be prepared to ask about their opinion on current events (don’t be afraid to ask a tough question or two).  For example, how has the French election impacted your investment thesis?

What is my all-in cost of investing?

Investment management fee + cost of owning the assets (internal expense ratios) + commissions + taxes = Total Cost of Investing.

Will my account be on a model?

Models aren’t necessarily bad for smaller IRA accounts.  However, we are finding many firms are sticking clients on model portfolios, regardless of tax consequences, which frees up the advisor to focus on sales/asset gathering. 

How many clients do you currently manage? 

Revenue obsessed investment managers are cutting headcount and loading up existing service teams to boost profit margins.  Client service ends up suffering.

Will I be serviced locally or outsourced to a call-center environment?

Local, personal service is becoming less important to large financial institutions.  


How often will we review investment performance?  Do you provide performance data gross or net of fees?

Investment performance should be available for review on request and should be preferably disclosed net of fees.  Advisors should be judged on the job they were hired to do.  Financial advisors will try to hide performance. Don’t let them. Demand full transparency and accountability.

The days of advisors relying on asymmetric information, where one party has more information than the other, to take economic advantage of unsuspecting clients is coming to an end.  Investors should demand full transparency around fees, potential conflicts of interest, and advisor compensation.  If an advisor will not give a direct answer to any of the above questions, it’s a sign they might be trying to hide something.

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