Updated January 2018
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?