6 Questions You Should Ask Your Financial Planner
* This article was originally published on Sept. 5, 2018. It has been updated for 2020.
You know that planning for your financial future is important; that’s why you’re considering working — or have already chosen to work — with a financial planner. But almost everyone in the industry has his or her own list of questions you should ask. And if you’ve had a relationship with your financial planner for a while, don’t you have all the answers already?
Maybe, but it doesn’t hurt to double check. We distilled this list down to the most important six things you should ask your current or prospcetive financial planner — and what you should expect to hear in response.
Whether you’re searching for a new Certified Financial Planner™ (CFP®) professional or you’ve been working with a CFP® pro for years, you’ll likely find all the following questions helpful in defining your planning relationship. Depending on where you’re at in your own financial planning journey, you likely won’t need to ask all these questions at your next meeting. However, if you come across any you don’t have the answers to, you can — and should — ask your financial planner.
So, whether you’re interviewing a CFP® pro for the first time or are getting ready for your next meeting, you can use this list to make sure you’ve got all your financial bases covered.
6 Questions for Financial Planning Professionals
1. What are your qualifications?
The financial planning world can seem like alphabet soup. Lots of financial planners use their designations with pride, and for good reason. But it’s not just important to see the financial planner you’re working with using them on a website or in an email signature. You’ve also got to understand where they’re from and what they mean.
A Certified Financial Planner™ (CFP®) professional has met the CFP Board’s rigorous education, examination, experience, and ethics requirements and should be ready to tackle a broad range of financial planning issues.
If income tax has you concerned, a Certified Public Accountant (CPA) or Enrolled Agent (EA) may be a good fit for you. CPAs are state-licensed practitioners, certified to competently provide accounting services to the public. EAs are federally licensed to represent taxpayers before the IRS, and the designation requires demonstration of a special competence in tax matters as well as ongoing education.
For needs specific to investment management, a Chartered Financial Analyst (CFA) charterholder may be the person you’re looking for. The CFA is a multi-topic program focused on investment analysis and management.
2. Are you a fiduciary at all times?
It might sound like a weird question to ask, but it matters. Fiduciaries are responsible for working in your best interest and avoiding conflicts of interest. Plus, they can’t put their interests ahead of yours, so I can bet you’ll want a “yes” answer to this one.
It’s important to discuss whether there’s any time when your financial planner can rely on the less-strict suitability standard when advising you. Try to avoid this literal double standard, if at all possible.
3. What type of financial planning do you do?
While this question may seem to have a straightforward answer, you never know until you ask.
Some financial planners are dedicated to doing just that: financial planning. Others perform additional services for their clients or might only spend a small portion of their time providing true financial planning services. Another way to ask: “What type of process do you take your clients through?”
It’s also important to ask your financial planner what his or her planning philosophy is. Financial planning isn’t something you can set and forget. It requires a holistic approach. Look for a financial planner who you want to work with for the long term; someone who can help you stay on the path to your financial goals as your needs evolve. Remember: Financial planning is a process.
4. What type or types of clients do you typically work with?
It’s important to look for a financial planner who works with other people like you. If the CFP® pro you found handles planning for retirees in their later years and you’re 29, 39, or 49, it’s probably not the right fit.
That’s why you should ask any prospective financial planners what they specialize in. Many CFP® pros will work with those outside their areas of focus, but it’s often helpful to find a financial planner who is best suited to help you.
For example, members of XY Planning Network are fee-only planners who specialize in working with gen-Xers and millennials. However, if the CFP® pro you’re thinking of working with specializes in generations X and Y but has a client list made up of only ultra-high net worth individuals, it might be time to keep looking if you’re still working on your first million. Again, a financial planner who serves clients in situations similar to yours is likely best.
Also, ask potential planners what they help their clients with to understand if your goals are similar to their average clients. If so, you might have found the perfect match.
… but you’re not done yet.
5. How do you charge for services?
Of course, the money question. Just as important is “Who pays you?”
Fee-only advisors or planners are only paid by their clients. They will bill a flat, hourly, retainer, and/or percentage of assets under management (AUM) fee, and that should be the only way the advisor is compensated.
Similarly, fee-based advisors or planners will bill fees to their clients … but can also earn commissions from third parties for selling products to those same clients. The relationship may be based on the fees clients pay, but a quick switch of the hat can allow the same advisor to collect a commission — even on something the client is or was already paying a fee for the advisor to manage. This may represent a conflict of interest.
Finally, commission-only and commission-based advisors or planners are generally only paid by the third-parties whose products they sell. Typically, this presents an incentive to sell the client a product — based on a lesser suitability standard — which often is a conflict of interest for the advisor between the client and the third party.
One acronym to be on the lookout for here is NAPFA, or the National Association of Personal Financial Advisors. What makes a member unique? Like XYPN members, they’re fee-only, meaning they don’t receive commissions. NAPFA members are required to serve you and not sell to you. They only charge fees for their services, which should be straightforward and transparent, allowing you to clearly evaluate the value you receive.
6. Have you been through disciplinary action with a regulator or broken the law while practicing?
It’s wrong to assume that a practicing financial planner also has a clean slate, and it may be unwise to work with one who has a spotty disclosure history. You should do some additional digging and your own due diligence and research on this one. The Financial Industry Regulatory Authority (FINRA)’s BrokerCheck and the U.S. Securities and Exchange Commission (SEC) Investment Advisor Public Disclosure (IAPD) website are fantastic resources.
Before committing to working with a financial planner, don’t hesitate to get the answers to these questions and more. Making sure you choose to work with a financial planner who’s right for you goes far beyond ensuring he or she has the right credentials and is a member of all the right professional organizations. You also need to find an advisor with whom you feel comfortable and who enjoy working with on a personal level.
Perhaps most important of all is to trust the financial planner who will be helping with your finances, but maybe that goes without saying. When you begin your financial planning relationship on a solid foundation, your trust in your financial planner can grow alongside your portfolio.
Not a client yet? See if our ensemble approach is right for you.