/Three Questions to Ask a Financial Advisor

Three Questions to Ask a Financial Advisor

Working Americans have spent decades saving for retirement—and it’s paying off.

Almost 100 million Americans have stashed a total of $7 trillion in retirement contribution plans. As they approach retirement, many are turning to a financial advisor to help them maximize their savings and see even more growth.

Before you commit to one, do your due diligence. U.S. News’ Jeff Jones shares three questions to ask:

What are their credentials? There is little to no regulation around the use of the term financial advisor. Anyone can hang out a shingle and print business cards with the term “financial advisor” on them. So it’s important to ask about the advisor’s education. Do they have a four-year or graduate’s degree? If so, what was their area of study?

Consumers should also ask about the advisor’s professional designations.

How are they compensated? There are two fundamental ways by which financial advisors or their firms are compensated—fees and commissions.

Fee-only advisors are compensated solely by their client with a fixed, flat, hourly, or percentage-based fee. They do not receive any compensation from investment commissions, referrals, or product sales. Commission-based advisors receive their compensation based on the investments they choose. Their compensation may be derived from commission paid by a mutual fund company or a sales charge applied to a product, such as an annuity or life insurance.

Are they a fiduciary on all managed accounts? Fiduciaries have a legal and ethical obligation to put the interest of their clients in front of their own or that of their employer. But not all financial advisors are fiduciaries, and some only have to act as fiduciaries for certain types of accounts.

Fiduciary advisors must also ensure that any conflict of interest that may arise is made known to their client.

Once you’ve asked these questions, then you can confidently pull the trigger.