7 Questions to Ask a Financial Advisor

1. What Services Do You Provide?

The term "financial advisor" can refer to a wide range of financial professionals, including financial planners, estate planners, investment advisors, insurance agents and tax professionals. Identifying your specific financial needs will help you choose the right advisor.

Do you want help with investing and retirement planning? Are you seeking a comprehensive approach to money management that will help you meet financial goals such as buying a house or paying for your children's college educations? Once you know what you're looking for, you can focus on advisors who offer those services.

Financial planners are advisors who often play multiple roles, such as creating a comprehensive financial plan for your current and future goals, offering investment advice and managing your portfolio.

2. What Are Your Qualifications?

There are no laws restricting who can advertise their services as a financial advisor or financial planner, so it's important to verify a professional's qualifications before working with them. Consider their education, credentials and experience.

• Certified financial planners (CFPs) have met stringent requirements for education, exams and ethics and have logged 6,000 hours of professional experience or 4,000 hours of apprenticeship.
• Chartered financial analysts (CFAs) must have 4,000 hours of professional experience and pass a three-part exam on investing, wealth management and portfolio management.
• Registered investment advisors (RIAs) manage investments for their clients. They are regulated by and must be registered with the U.S. Securities and Exchange Commission (SEC) and may also be registered with state securities agencies.

The National Association of Personal Financial Advisors (NAPFA) recommends choosing financial advisors who have college degrees; are educated in finance topics such as taxes, insurance and investments; and participate in ongoing professional education to keep their skills up to date. Also ask the advisor how many years of experience they have in the field.

3. How Do You Get Paid?

Financial advisors are typically paid in one of three ways.

1. Fee-only financial advisors charge you fees for their services in the form of an hourly rate, a retainer, a flat fee for services or a percentage of the assets they manage for you. They don't earn any commissions from recommending products or services to you.
2. Commission- and fee-based financial advisors charge fees for their services, but also earn commissions on investments or other products they recommend.
3. Commission-based financial advisors make money solely from commissions on the products they recommend to you.

Ask for an example of typical fees for the services you're interested in. If an advisor's fee structure includes commissions, find out exactly how they are compensated for each type of product they sell or for trading securities.

4. Are You a Fiduciary?

Fiduciaries are legally required to act in their clients' best interests, including disclosing any potential conflicts of interest and complying with a code of ethics. RIAs are required to follow a fiduciary standard. Working with a fiduciary financial advisor can give you peace of mind that their advice is designed to benefit you, not to earn them commissions.

5. What Types of Clients Do You Work With?

It helps to have a financial advisor who understands your specific concerns, life stage and unique financial needs. For instance, you might be recently divorced, own your own business or have a child with special needs.

A single parent will have different financial concerns than a high-earning, two-income couple planning to retire at 40. Asking potential financial advisors what types of clients they typically work with can help you find an advisor whose expertise matches your requirements. Checking to see if the advisor requires clients to have a minimum amount of assets may also eliminate some advisors from your list.

6. Have You Ever Been Cited for Disciplinary Reasons?

Disciplinary action against a financial advisor by regulators or professional organizations can be a red flag. Depending on the severity of the action, you may want to give the advisor a chance to explain the situation. You can use the SEC's FINRA BrokerCheck or the SEC Investment Professional Online Tool to see if an investment firm or professional is properly registered and see a history of their employment, regulatory or court actions, licensing information and any complaints against them. You can also visit the Better Business Bureau (BBB) website for customer reviews.

7. How Will You Communicate With Me?

Look for an advisor whose approach to communicating matches your own, whether you prefer phone calls, video calls, emails or face-to-face meetings. Ask about communication frequency, too. Will your advisor schedule periodic meetings to discuss your progress toward financial goals? Can you ask your advisor questions whenever you want?

Also find out if the specific advisor will be the only one working with you, or if other advisors or junior colleagues will be involved. If the latter, you'll want to ask all the questions above about those advisors, too.