Working with a financial advisor is a great decision. Would you argue a serious case about a legal document in a court of law without an attorney? Would you opt to have surgery from someone who wasn’t trained as a medical professional with expertise in your specific area of concern?
Of course not. And if you follow the same logic, working with a good financial advisor can improve your chances of financial success. Not only will a good financial advisor optimize your ability to manage your money, they can save you boatloads of time and stress.
We know financial advice isn’t cheap – and that’s for good reason. If you’ve made the commitment to invest in yourself by assembling a professional team around you, it’s worth taking the time to ask: are you getting more value than the price you’re paying? And are there things your advisor might be missing?
Here are some questions that can make sure your financial advisor is not only someone you can fully trust but also someone who’s doing the most for you.
1. Will you put your fiduciary commitment in writing?
Different financial professionals are held to different standards of care. Some work under the fiduciary standard while others operate under what’s “suitable.”
The fiduciary standard requires that an advisor put a client’s interest first. The suitability standard only requires a broker to make recommendations that are “suitable” based on a client’s personal situation.
You can read this brief description of the differences between the two standards, but the bottom line is that you should want your advisor to act as a fiduciary at all times.
The critical part of that sentence is at all times. There are some people that act as a fiduciary when developing a financial plan or investment allocation, but then act under the suitability standard when implementing the recommendations.
Attorneys and accountants are required to put the interests of their clients first. Medical professionals do not put their own interests before the patient’s. Why should financial advice be any different?
It’s unfair to expect the average person to know when an advisor is or isn’t acting as a fiduciary, and most people using a financial professional struggle to understand that their advisor might not act (or even be obligated to act) in their best interest.
But the fact remains that, at this time, there are two standards of care for financial professionals.
Therefore, act accordingly: ask the fiduciary question. If your advisor isn’t willing to put their fiduciary commitment in writing, then they can’t be held accountable for working in your best interest.
2. Will you run a tax projection?
While an accountant can obviously run a tax projection on your behalf, why pay the additional fees to another professional when such services should be included with a high-quality advisor?
At a very basic level, tax projections eliminate surprises, which can help you feel more informed and have a better understanding of your situation before needing to file your return come April. All your advisor will need is your most recent tax return (sometimes two years of returns is useful) and your most recent pay stubs.
But a projection can do more than simply minimize surprise when it comes to your return—they can allow you to make better decisions on when and how much to contribute to charity.
Bunching deductions (including charity) in a high income year maximizes the income tax benefit, for example – and a detailed tax projection can help you decide whether it makes sense to bunch several years of charitable contributions into one year.
Another good use of a tax projection is better understanding the implications of doing partial Roth conversions in the years leading up to age 72, when you will be required to take Required Minimum Distributions (73 if you reach age 72 after December 31, 2022.
Tax projections also help you control the timing of income and deductions, which is especially beneficial for business owners who can impact the bottom line by accelerating or delaying income and expenses to stay below certain thresholds (including 3.8% net investment income tax).
If your situation is simple enough where an annual tax projections isn't necessary, consider asking your advisor about situations and life events when it might make sense.
3. Will you review my estate planning documents?
Much like having your advisor run a tax projection can save you money with your accountant, having your advisor read through your estate planning documents and make recommendations can save substantial amounts of money in legal fees.
Estate tax law changes periodically, which may necessitate changes in your estate planning documents. For example, estate tax exemption amounts, currently at $13.61 million per individual, are set to revert back to approximately $5.5 million per individual at the start of 2026. A good proactive advisor will work with you now to build a multi-year strategy to ensure your estate isn't put at risk.
When you have an advisor do this work, you will want to make sure they aren’t simply outsourcing to an attorney so that they may refer the business. An attorney in this scenario will often want to redraft your documents and charge you for a completely new estate plan.
On the other hand, a firm offering comprehensive financial planning has the expertise to identify gaps and opportunities in your estate planning documents without outside counsel (and cost).
When you ask for an estate plan review, you should receive an outline of the key people or entities (executors, trustees, guardians, etc.), a flow chart explaining how your estate passes through different entities to your heirs, and recommendations for improvements based on your goals.
This puts your estate plan in plain English, which often makes it easier to identify the types of changes you’d like to make.
4. How do you get paid?
You should have asked this question when interviewing your advisor, but better late than never.
But to be clear, this question is aimed at the individual acting as your advisor, not the firm as a whole. At the firm level, you want a fee-only firm (not fee-based or commission-based) to remove the possibilities your advisor is receiving commissions or kickbacks for the products they recommend.
Even for advisors working at a fee-only firm, how the people you work with are compensated can reveal their incentives. I’d argue that advisors who are salaried employees, for example, have fewer conflicts of interest than someone who gets paid a percentage of the revenue their clients generate.
You definitely wouldn’t want them to be getting paid based on the products you are using or the activity in your account because this is a hefty conflict of interest that may lead to advice that isn’t in your best interest.
Same goes for advisors that participate in sales contests or award programs, which create incentives that favor particular products and vendors over others. You also don’t want your advisor being paid for making referrals to specialists like estate planning or insurance agents.
5. If something happens to you, who will take over my account?
Even the best advisors will retire at some point in time. Unfortunately, not all advisors plan for the inevitable.
According to a 2022 study by Cerulli Associates, 25 percent of advisors planning to retire within 10 years are unsure of their succession plan. And even those with a formal plan haven’t necessarily started the succession process.
But retirement isn’t the only thing to consider. It’s also common for an advisor’s career to shift such that they will no longer be your advisor, whether that’s through internal promotion or leaving for another opportunity.
It’s important to know who would take over your account. What are their credentials and experience? How involved are they with your account today, and is there a process in place to get them up to speed if they don’t normally work with you? Do they work with other clients who are like you, and therefore familiar with your needs and goals at this stage of life?
Next Steps and Additional Questions for Your Financial Advisor
Using a good advisor can make a significant positive impact on your net worth. But how can you know that your advisor is one of the good ones?
Asking the above questions of your advisor helps ensure you’re taking full advantage of all the value a financial professional might offer. It also may shed some light on whether you are working with someone that truly offers comprehensive financial planning.
After all, why pay for financial advice if you aren’t getting comprehensive advice? If you don’t use an advisor today, take our 2-minute quiz to match you with the perfect recommendation for your situation.
