The key questions to ask when looking to hire a financial advisor and the questions to ask your financial advisor during your annual review.
Whether you’re shopping around for a new advisor or already have one, there are some key topics you should discuss.
Colleen Hailley has both retirement savings and an advisor, but she can’t tell you much about either one. “It’s something I keep meaning to do, but I put it off,” says the 47-year-old Winnipegger, about getting in touch with her advisor.
Colleen, who runs her own hairstyling business, puts money into one equity mutual fund held inside her RRSP, every month, but she’s not heard from her advisor in at least a couple of years. “I actually can’t remember the last time we talked. I’m not even certain she is still my advisor,” she says.
Colleen is like many Canadians who have investments, but rarely talk with a financial professional. According to a survey sponsored by the Financial Planning Standards Council, four in 10 Canadians feel like their financial futures are not under control.
That number, suggests Brent Allen, a Senior Vice-President at IG Wealth Management, is a sign that these investors are not being well served by their advisors. “This speaks to the quality of advice people are getting, or entire lack thereof,” he says.
Even if Colleen did meet with an advisor, she says her lack of knowledge about finances and investments makes her feel intimidated about the whole process. “Frankly, I wouldn’t even know where to start,” she says. However, Colleen does know that if she can find someone who understands which conversations they need to have, then she’ll be one step closer to reaching her goals. “Having the basics about what to ask is certainly helpful, especially for someone like me,” she says. “I don’t know much about financial planning and investments, but I should.”
So, what kind of conversations should you be having? The questions to ask your financial advisor fit into two distinct categories: one set to ask when choosing a new financial advisor and the other to ask your financial advisor during your annual review. Let’s start by looking at what you should be discussing when finding a new advisor:
Essential questions to ask when selecting a financial advisor
1. What qualifies you to provide advice?
Whether you’re looking for a new advisor or already working with one, it’s a good idea to find out how they’re qualified to give financial advice, says Brent. Ask them about their qualifications and how they’re continuing to educate themselves in a constantly changing world. Advisors often have many areas of expertise, from investments to life insurance and estate planning. What most people need — especially when seeking advice for the first time — is a certified financial planner. “That is the gold standard,” says Brent.
2. What is your approach, and what services does it include?
Discussing the advisor’s investment style is also an important conversation to have. Are they picking stocks and bonds, or choosing professionally managed portfolio solutions? Does that line up with how you want your money to be invested? Also, talk to them about the other services they offer. Many now offer comprehensive estate plans, succession plans for business owners and more. Another important discussion to have is around availability. Unlike Colleen’s advisor, you want someone who can keep these conversations going after the initial meeting, for example, in your home or by video conference call, says Brent.
3. What am I paying for all of this?
Of all the questions to ask your financial advisor, this is often the most eagerly anticipated. We all know that advice isn’t free, but you deserve to have a frank and open discussion about fees before agreeing to hire them. “Are you writing a cheque at the end of every month or are you paying a percentage out of your investments?” Brent asks. It’s important to understand what you’re paying for and to determine whether you’re getting value for money. “If the cost is X, and you’re getting 3X in return — financial planning, portfolio management and tax-savings strategies — that’s good value,” he says.
4. What should my goals be, and how can you help me achieve them?
The first place to start is to set some goals, says Brent, who adds that working with an advisor is about more than saving for retirement. Goals might include retirement, but could also include buying a cottage, saving for a child’s education, taking annual trips or more. Your advisor should help you define your goals and then develop a plan to reach them, he says. That can only be done if you and your advisor are talking regularly. “It’s not a spectator sport,” he adds. “Everyone needs to be involved.”
5. How will we measure success?
Once you define your goals, talk about what success might look like. A win isn’t necessarily measured by a portfolio beating its benchmark. It could be taking that vacation, buying that cottage or just seeing assets increase. If you ask an advisor how they define success for themselves, the answer, says Brent, might be how many clients have hit their goals. Ask for some references to see if they’ve been able to achieve success with others.
Questions to ask your financial advisor during your annual review
Once you’ve selected your ideal financial advisor, you should be meeting up with them at least once a year to go over the past 12 months and look ahead to the next year. These are some of the questions to ask your financial advisor to make sure everything is staying on track.
6. How have my portfolio and net worth performed?
How you judge your investments’ performance will depend on the expectations you set with your financial advisor. If you told them that you have a high risk tolerance and want to maximize growth, then your portfolio’s performance should reflect that. Your financial advisor should be able to explain not only how your portfolio performed, but also what factors may have influenced it.
Similarly, it’s important for you to know where your net worth sits and how it compares to last year. Again, your financial advisor should go over the reasons for any changes.
7. Are all of my goals still on track?
This is where you get to test the value of the financial plan your advisor put together for you. You would expect to see consistent progress towards all of your goals. If this is not the case, your advisor should not only be able to explain why, but also have a plan in place to get them back on track.
Ask them if you can still retire on time, with the amount of income you expect to need to maintain your preferred retirement lifestyle. This is the chief concern for most investors, and your advisor should be confident in being able to help you reach this goal. They should be able to tell you how much you currently have saved for retirement; how much you’re on course to save by the time you stop working; how long that money will last (while including all other retirement income, such as CPP and OAS); and if you are falling short in any way.
If it currently looks like you won’t have enough money by the time you want to retire, your plan needs to be tweaked to make up this shortfall.
8. Do I need to make any changes to my plan?
When you ask this question, your advisor should in turn ask you if there have been any major changes in your life, such as getting married, having a baby, or switching jobs. If you’re earning considerably more (or less) money, then not only your plan but also your goals may need to be modified.
Do you have new financial goals, such as the need to save for a wedding, or start an education savings plan, or a desire to travel the world when you retire? Or has there been a major change in global stock markets? Now is the time to bring those considerations into your financial plan.
9. Is my plan making the most of tax strategies?
When it comes to the most important questions to ask your financial advisor, this is often the one that people forget, even though it can be the most crucial. A thorough financial plan will incorporate every aspect of your finances and each aspect should be set up as tax efficiently as possible. Now is the time to go over which tax strategies your advisor has put into place, how well they’re working and what you should do before you file this year’s taxes (for example, the best ways to maximize your charitable donations).
10. What should I concentrate on in the coming year?
Your annual review conversations should prompt ideas and directions that may be different from last year. Your financial advisor may set new goals for you to aim for this year, along with ways to achieve them and any tax strategies that will be helpful along the way. You should leave your annual review with a clear plan of action for the upcoming 12 months.
Starting the conversation with your financial advisor
Now that you know which questions to ask your financial advisor, it’s time to put them to the test. If, like Colleen, you haven’t heard from your advisor in some time, reach out to them to arrange a review and have these questions ready to ask.
If you haven’t yet started working with a financial advisor or feel that you might want to find a more pro-active one, it’s easy to get started. You can click here to arrange an initial meeting. You can then ask them the five questions listed above to find out if they’re the right person to help you reach all of your financial goals.