Questions to Ask Your Financial Planner

I recently ran across an interesting brochure that was put out by the Certified Financial Planner Board of Standards (CFP Board). This is the group that grants the Certified Financial Planner (CFP) certification. In the brochure, they list ten questions that you should ask when choosing a financial planner.

Ten questions to ask your financial planner

  1. What experience do you have?
  2. What are your qualifications?
  3. What services do you offer?
  4. What is your approach to financial planning?
  5. Will you be the only person working with me?
  6. How will I pay for your services?
  7. How much do you typically charge?
  8. Could anyone besides me benefit from your recommendations?
  9. Have you every been publicly disciplined for any unlawful or unethical actions in your professional career?
  10. Can I have it in writing?

My thoughts

This list is a great start, as it gets at issues such as whether or not the advisor’s experience and philosophy are appropriate for your needs, as well as whether or not their fiduciary interests are in line with your own, etc.

I would, however, add at least one question to this list… As uncomfortable as it may seem, I would ask a bit about their personal financial situation. Most importantly, are they currently carrying consumer debt?

While some might view that question as out-of-bounds, or perhaps even judgmental, I’m not particularly interested in taking advice from someone who isn’t “walking the walk.” Of course, you might not get a straight answer when you ask, but you can tell a lot by how they react.

What do you think? Does this list cover all the important bases?

16 Responses to “Questions to Ask Your Financial Planner”

  1. Anonymous

    Remember, readers, that if you have a 100K or so of investments, some of the large mutual fund companies will provide you with a basic investment/financial plan at NO charge…..while financial planners often charge a commission of about 1% to “manage” you account, do the same thing as the mutual fund companies, and then buy/sell to increase their take (in addition to the 1 %). Over twenty years, you’ve lost at least 20% for the planner’s supposed “expertise.” Beware! Think fee-based, fee-based, fee-based OR just use Fidelity, Vanguard, TR Price, etc.

  2. Anonymous

    I have never used a financial planner so I question..if you have enough money to feel the need to use someone, are you not saavy enough to do the research yourself? Also, isn’t it true that financial planners have his/her preferred products which earn them the most commission, so that the client does not really get the benefit of all options but only the ones in the planner’s portfolio of products?

  3. Anonymous

    My firm matches individuals to financial planners, so we work with thousands of people in this situation. Another good question is, “What is your experience working with other people in the same financial situation as me?” Many financial advisors focus on retirees or business owners or socially responsible investing, or hundreds of other niches. You want to make sure you are working with someone who has experience with your specific needs and goals.

  4. Anonymous

    I would ask these two questions:

    1. Do you think outside the box?
    2. Will you ask me to step outside my comfort zone to sacrifice for the long-term?

    Hopefully they would answer yes, and yes. I understand that not everyone would want to ask these questions…but I would! 🙂

  5. Anonymous

    If I may, I’d like to add one more question to the list:
    Is the financial planner truly independent, or does he/she have an employee, agent or business relationship with any insurance companies, investment firms, mutual funds, etc, into which he might prefer to direct your money?

    A lot of people call themselves financial planners when they’re mostly representatives for a single concern. This will provide a good indication of whether or not the planner will put your interests first in practice.

    Pay close attention on any specific recommendations–does the FP suggest this or that mutual fund or insurance policy, or does he insist? That’s a vital clue. Another is if you suggest alternatives that he quickly shoots down. It indicates that he might be working for someone other than you.


  6. Anonymous

    I would ask three additional questions:

    1. In advising about asset allocation and diversification, does the planner incorporate assets he/she will not be managing, such as real estate, commodities, privately held business interests, etc., or will his/her advice take into account and attempt to diversify only within the asset classes he/she will be involved with (usually, stocks and bonds)?

    I would be looking for someone who recognized that your wealth “portfolio” is broader than just your stock and bond holdings.

    2. What are the planner’s general views of the future probability of extraordinary events – deflation or hyperinflation, for example.

    I would be looking for someone who seems to have a long-term historical perspective of bubbles, crashes, and the like, and doesn’t just wave off such events as improbable. Yes, they are improbable, but so is getting in a serious car crash, and yet sensible people wear seatbelts anyway.

    I would also want to see considerable humility in attempting to predict the future. The best answer would point out that these kinds of things happen, although rarely, and the early signals are hard to read, but that the risk is always there and that is why the client’s well-informed risk comfort zone is so important to determine, and to reevaluate from time to time. I would be fine with the planner offering a general conclusion that some outcome is probable, if he/she can back it up with sound reasons, as long as they don’t seem to be 100% sold on their own view and accept the need to hedge for the possibility of the opposite outcome. I would also be fine with the planner saying, in effect, “I haven’t a clue.”

    3. I would ask what economics, investing or finance writers have made the biggest impression on the planner’s own thinking and why.

    A good answer would identify at least a couple of serious writers, whether they be Adam Smith, Marx, Mills, Keynes, Milton Friedman, Sowell, Hayek, Becker, Posner, or the like. A perfectly adequate answer would be serious investor analysts like Graham or Bernstein.

    If the only names the planner can think of are “pop” economists or financial gurus like Benjamin Franklin, Napoleon Hill (Think and Grow Rich), Orman, Ramsey or the “Rich Dad, Poor Dad” or “Millionaire Next Door” types, I would have serious reservations. Not because those people don’t offer some good ideas, but because reading them makes few demands on people’s thinking, and suggests the planner is not willing to put in the work to understand the basic principles of his/her profession.

    The “why” part of the answer is to warn you if your planner is a “born-again” fanatical believer in any particular line of thought, who thinks one particular writer has answered all possible questions. Even the wisest of writers should at best be consulted with respect, not worshipped as infallible.

  7. Anonymous

    “I’d also include, “Do you practice what you preach?”.” I think that’s an excellent one and possibly a more tactful way to ask about the consumer debt. They are definitely important questions to ask though, because as The Power of Small book I just read points out, paying attention to the little details now and asking the tough questions early on can help you tackle little problems before they become huge.

  8. Nickel

    All valid points, Dylan. I suspect that some of my aversion to debt has to do with our stage in life. If someone is carrying debt because they’re just starting out and/or made some mistakes, but are in the process of paying it off, that’s not as big of a deal to me. However…

    I’d be most interested in being advised by someone at my stage of life or beyond. In that case, if someone is still carrying debt, there’s likely to be an underlying problem with their personal financial decisions. So I guess there might also be an age/stage component to this, as well.

  9. Anonymous

    Nickel, good points, and such a non-specific answer is reasonable for a planner to give, provided it is truthful.

    I’m not sure the presence of non-mortgage debt necessarily indicates a planner is not “on-top of things,” just that they may not have been at some point in the past. Just like it takes time and other healthy habits to restore health after you quit smoking, it takes time and good financial habits to restore wealth after you stop accumulating debt.

    What if they have no consumer debt now but did a year ago and paid it off? Would that indicate they are or aren’t on top of things? Can you conclude that they were on top of things any less 2 or 3 years ago? Does the moment there is no more debt suddenly make an advisor more credible? Or should they never have had any debt in the first place in order to ever be credible? Or is more detailed information needed to make a real determination?

    It’s hard to do defend this idea without feeling like I have to lay some of my cards on the table (and then feeling like I have to explain it). So, I will share here that I do have a mortgage and a credit card with a balance. We had student loans up until 2007, car loans up until 2008, and we pay the credit card we use in full each month. We do spend less than we earn.

    I know we’re on top of things, but we do have debt. I don’t think that impacts my ability to advise clients (I actually think my experiences with debt are helpful), but will also concede that I can not possibly be completely objective about myself.

    I’m still not sure that I would engage in that discussion if asked by a prospective client because at some point I will have to draw a line in the sand about how much explanation is safe or appropriate, leaving them to assume whatever they want about the rest anyway.

  10. Nickel

    Dylan: Excellent answer. However…

    I would personally have no problem telling someone that I spend less than I earn and have no debt other than a mortgage that I’m paying down ahead of schedule. While I understand the importance of protecting your private information, I’m having a hard time seeing how this sort of general (non-detailed) information could be mis-used.

    Of course, if I wasn’t on top of things, I’d be less willing to answer because it might be embarrassing, and could also cost me business. So… If someone refused to answer a seemingly innocuous (albeit potentially awkward question), I would assume the worst and move on.

  11. Anonymous

    The CFP Board’s 10 questions is a great place to start and may trigger other questions as well. However, there are three additional questions that are worth asking (and getting the answer in writing):

    1. Will you, at all times, place my interests ahead of your own or your firm? (The answer should be yes)

    2. Are there ever any exceptions to placing my best interest first? (The answer should be no)

    3. Will you earn more money if I follow the advice you give me? (The answer should be no)

    (The reason for getting answers in writing is not so much to have it as evidence in the future. It’s to see if they’re even willing to put it into writing in the first place.)

    Contrary to popular belief, the job of a financial planner is not to make money for you. The job of a financial planner is to efficiently and accurately plan the delay of consumption and manage the risks in the process.

    The question about carrying consumer debt reminds me of the doctor that smokes. I think the issue should be whether or not a financial planner spends more than he earns (adding to debt) than whether or not he has any debt. I wouldn’t want a doctor that smokes, and I wouldn’t want a financial planner that doesn’t have control over his spending. I think you can usually sniff either of them out pretty quickly; however, I don’t think asking is appropriate.

    I am a financial planner, and I would not answer questions about the specifics of my own personal finances to a stranger. When people share their personal financial information with a financial planner in a professional context, federal and state privacy laws dictate how that information may be used. If a planner shares personal financial information with a client or prospective client, there are no such protections or available recourse for the misuse of that information. I would not share information without these protections anymore than I would expect them to. That’s practicing what I preach too.

  12. Anonymous

    Nobody has ever asked me that and I think it’s fabulous that you bring it up.

    If a planner can’t manage their own financial situation, how are they going to mange yours?

    I’d also ask, “What would your best client say about you”
    and “What would the client who fired you say about you”

    Let’s see if they planner will answer honestly. That goes to character and very important.

  13. Anonymous

    I’d also include, “Do you practice what you preach?”.

    If your advisor is confused by the question, run for the hills.

    If your advisor chuckles and says, “Yes, I invest my own money according to the same methodologies that I recommend to my clients”, then you can move onto the next question.

  14. Anonymous

    Two thoughts. The first is in regard to asking about consumer debt. I think it depends on what advice you are hoping the advisor to provide. For example, if you’re seeking estate planning or insurance planning advice, whether or not they carry consumer debt I would think is irrelevant. They might be experts on their area of expertise, but not in other areas.

    My second point is whether you can get the information in writing. If you’re looking to get a portfolio constructed by the advisor, most will not give you the information in writing ahead of time. The reason being, is there is nothing to stop you from taking that information and constructing the portfolio yourself. If you paid the advisor a fee, then you should be able to get anything in writing. Just don’t expect something for nothing.

  15. Anonymous

    That’s an excellent list. All I can think of off the top of my head is that I’d delve a little more in depth into #4 “What is your approach to financial planning?”

    Find out a little bit about what portfolios they create for clients look like. Are they primarily index funds? Actively-managed funds?

    Check to see if he tries to sell you on his ability to provide above-market returns. That’s a big red flag to me.

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