3 questions you should ask your financial advisor

Stay engaged to maximize your relationship with your advisor

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From the January 2016 issue of the magazine.

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Your advisor is your key to a successful financial plan. But in order to maximize the relationship, you need to be engaged. Here are three simple questions you should ask to make sure you and your advisor are on the same page.

1. How much do I pay you?

Good advice is worth paying for. The question is whether you’re getting good value. When confronted with this question, advisors should respond quickly and that’s a good sign. You want to work with an advisor who is up front with how they are compensated and doesn’t pad fees with overpriced commission-based funds. If your advisor charges a fee based on the amount you have invested, no problem. But check that those fees are between 1% to 1.75%. Good advice is meaningless if the returns are eroded by high fees.

2. What’s my rate of return?

Want to know if your financial plan is on track? Just ask. A good advisor should be able to quickly show you your average annual return, after fees, and how it compares to its appropriate benchmark. MoneySense columnist Bruce Sellery suggests examining the rates of return for a year and for the last five years. “Institutional money managers keep a close eye on this ‘relative’ performance. So should you,” he says. “Missing by just one or two percentage points can cost tens of thousands of dollars over time.”

3. Can you give it me straight?

If you want to stay on track, you need a road-map. Your advisor should provide a financial plan with annual portfolio reviews. But do you understand what he’s saying? Your advisor needs to be able to walk you through these documents. If reports and answers are unclear or jargony ask yourself: Is this the person you want to trust with your life savings?

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One comment on “3 questions you should ask your financial advisor

  1. It’s important to distinguish between a financial planner and an investment advisor, and it seems that the advice/questions above confuse the two.

    Your financial planner probably doesn’t directly manage investments (especially if they are a fee-only financial planner), but will give you a roadmap to advise you in all areas of your finances (income, expenses, debt, taxes, banking, retirement planning, risk management, estate planning, etc), not just your investments.

    Your investment advisor can provide guidance about the investing landscape, what products are available, make recommendations about what to choose and why, suggest alternatives, build a portfolio for you, monitor your investments for performance, determine whether you are sticking to the asset allocation recommended in your financial plan and help with rebalancing, and address investment-related tax considerations. They probably don’t do comprehensive financial planning… at least not in a comprehensive way.

    Many *claim* to do both, but it’s important to verify whether you are truly getting both financial planning and investment advice in equal measure. If not, find someone who specializes in the piece you are missing.


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