Choosing a financial advisor is a crucial step in managing your finances and achieving your financial goals. Whether you’re planning for retirement, investing, or saving for a major purchase, a skilled financial advisor can provide valuable guidance. However, not all financial advisors are created equal, and it’s essential to ask the right questions to ensure you find the right fit for your needs. For example, before anything else, make sure they are certified! In this blog, we’ll discuss six important questions to ask a financial advisor during your initial consultation.

What is a Financial Advisor?

A financial advisor is a professional who provides guidance and advice to individuals, families, or businesses on a wide range of financial matters. Their primary goal is to help their clients make informed financial decisions, achieve their financial goals, and secure their financial future. Financial advisors can play various roles and offer services tailored to their clients’ specific needs and circumstances.

Types of Financial Advisors

Unfortunately, the title “financial advisor” is unregulated, meaning anybody can use it. As a result, financial advisor has become an overarching term for professionals who can help you make financial decisions. Financial advisors can range from brokers to robo-advisors, financial coaches to investment advisors, and everything in between.

Familiarize yourself with the different types of financial advisors to see which one will best fit your needs. Of course, you can always reach out to a trusted CPA for a consultation to determine what may be best for your financial needs and goals.

Once you find a financial advisor you may want to work with, ask them a list of questions to further understand what they can do for you, and if they will work in your best interest.

1. Are You A Fiduciary 100% of the Time?

One of the most critical questions to ask a potential financial advisor is whether they act as a fiduciary at all times. A fiduciary is legally obligated to put your interests above their own, ensuring that they provide recommendations that are in your best financial interest. This commitment to acting in your best interest helps you avoid potential conflicts of interest that could compromise your financial well-being.

Fiduciary Requirements:

  • Duty of Loyalty: Fiduciaries must put their clients’ interests ahead of their own and avoid any conflicts of interest.
  • Duty of Care: Fiduciaries must provide advice and services that are thorough, well-reasoned, and suitable for the client’s specific financial situation and goals.
  • Prudent Investing: Fiduciaries must make sound and well-informed investment decisions when constructing and managing portfolios.
  • Full Disclosure: Fiduciaries must provide complete and transparent information, disclosing any potential conflicts of interest, fees, and compensation structures.
  • Avoidance of Self-Dealing: Fiduciaries cannot use their position to benefit themselves at the expense of the client.
  • Acting Solely in the Client’s Interest: The fiduciary must prioritize their clients’ interests above all else, even if there are other stakeholders or interests involved.

It’s important to note that not all financial professionals are fiduciaries. Some may operate under a suitability standard, which means they are required to recommend products that are suitable for your financial situation but may not necessarily be the best option for you. Therefore, when seeking financial advice, it’s advisable to ask whether the advisor is a fiduciary and committed to acting in your best interest.

fiduciary financial advisor at her desk helping a client invest their money safely

2. What Do You Specialize In?

Financial advisors often have expertise in specific areas of finance. It’s essential to inquire about their specialization to determine if it aligns with your financial goals. For example, some advisors specialize in retirement planning, while others focus on estate planning or investment management. Choosing an advisor whose specialization matches your needs can lead to more tailored advice and better outcomes.

At Tristar CPAs, we specialize in helping individuals and small businesses make smart financial decisions through our multiple advisory services.

3. Can I See a List of Financial Services and Total Cost of Services?

Understanding the range of services offered by a financial advisor and the associated costs is crucial for making an informed decision. Request a detailed list of services, including financial planning, investment management, tax planning, and estate planning. Additionally, ask about their fee structure, whether it’s fee-only, fee-based, or commission-based, and ensure you are comfortable with their pricing model. Typically, if they are commission-based they will try to sell you additional services you may not need.

Some financial advisors are CPAs, meaning they can also offer tax services, audits, and accounting services. At TriStar CPAs, we have a strong team of experts who can provide financial counseling in addition to other necessary financial services to ensure you reach all of your financial goals with ease.

For example, we offer

  • Business Services
  • Tax Preparation
  • Advisory Services
  • Retirement Planning

Our price varies depending on your needs, budget, and preferred services. Get in touch with us for your customized quote!

4. How Do You Manage Investments?

If investment management is a part of your financial plan, it’s essential to delve into how the advisor manages investments. Ask about their investment philosophy, risk tolerance assessment, and the types of investment vehicles they recommend. Inquire about their track record and how they adjust investment strategies to align with your goals and risk tolerance.

You may want to familiarize yourself with these types of investments:

  1. Stocks (Equities): Stocks represent ownership in a company. When you buy shares of stock, you become a shareholder and may have voting rights and receive dividends. Stocks can offer the potential for capital appreciation, but they also come with higher volatility and risk.
  2. Bonds (Fixed-Income Securities): Bonds are debt securities issued by governments, municipalities, or corporations. When you buy a bond, you are essentially lending money to the issuer in exchange for periodic interest payments and the return of the bond’s face value at maturity. Bonds are generally considered lower risk than stocks.
  3. Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They offer diversification and professional management but may charge fees.
  4. Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds but are traded on stock exchanges like individual stocks. They offer diversification, liquidity, and transparency and often have lower expense ratios than mutual funds.
  5. Real Estate: Real estate investments involve buying physical properties or investing in real estate investment trusts (REITs). REITs are companies that own or finance income-producing real estate and offer investors a way to access real estate markets without owning physical properties.
  6. Commodities: Commodities include physical goods like gold, oil, agricultural products, and metals. Investors can buy commodities directly or invest in commodity-related funds or futures contracts.
  7. Certificates of Deposit (CDs): CDs are low-risk, interest-bearing deposits offered by banks with fixed terms and interest rates. They are insured by the FDIC in the United States, making them a very safe investment.
  8. Savings Accounts and Money Market Accounts: These are low-risk, interest-bearing accounts offered by banks and credit unions. They provide liquidity and safety but typically offer lower returns compared to other investments.
  9. Treasury Securities: U.S. Treasury securities, including Treasury bills, notes, and bonds, are backed by the U.S. government and considered one of the safest investments. They provide fixed interest payments and return of principal at maturity.
  10. Private Equity: Private equity investments involve buying shares or ownership stakes in private companies, often through venture capital, buyouts, or direct investments. These investments are typically illiquid and require a longer investment horizon.
  11. Hedge Funds: Hedge funds are investment funds that employ various strategies to generate returns for their investors. They often have higher minimum investment requirements and may charge performance-based fees.
  12. Cryptocurrencies: Digital or virtual currencies, such as Bitcoin and Ethereum, have gained popularity as alternative investments. Cryptocurrencies are highly speculative and can be extremely volatile.
  13. Collectibles: Investments in collectibles, such as art, rare coins, vintage cars, and antiques, can appreciate over time. However, their value is often subjective and may be influenced by trends and demand.
  14. Peer-to-Peer Lending: Investors can participate in peer-to-peer lending platforms where they lend money to individuals or small businesses in exchange for interest payments.
  15. Foreign Exchange (Forex): Forex trading involves the buying and selling of currencies on the foreign exchange market. It is highly speculative and requires a deep understanding of currency markets.

Each type of investment carries its own risk and return profile. Typically, diversifying your investment portfolio across different asset classes can help spread risk and achieve various financial goals. If you prefer high risk or low risk, make sure your financial advisor aligns their investment strategies with your financial goals.

5. How Will I Get in Touch with You to Access My Funds?

Accessibility and communication are key factors in your financial advisor-client relationship. Ask about their preferred methods of communication and how quickly they typically respond to inquiries. Inquire about the process for accessing your funds when needed and whether they have any restrictions or penalties associated with withdrawals or account management.

6. Do You Follow Changing Tax Laws?

Tax laws and regulations can change frequently, affecting your financial strategy. For instance, the U.S. tax code is 9,000 pages, and saw 4.600 changes between 2001-2012.

A knowledgeable financial advisor should stay up-to-date with these changes and incorporate tax-efficient strategies into your financial plan. Ask whether they have a plan for adapting to changing tax laws and how they can help you minimize tax liabilities. Furthermore, be sure they keep up with changes in state, local, and federal tax laws.

Most importantly, look for a financial advisor who has the right credentials for tax planning. This ensures your financial advisor will give sound tax advice that complies with current tax laws. Keeping in compliance with tax laws is of utmost importance. Otherwise, you may face penalties from the IRS. Thankfully, the IRS provides a list of credentials they accept for a financial advisor to qualify as a tax professional. You can also search their directory for a specific tax advisor’s credentials.

Find the Right Local CPA For You at TriStar CPAs in TN
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Choosing the right financial advisor is a significant decision that can have a lasting impact on your financial well-being. By asking these six important questions during your initial consultation, you can gain valuable insights into the advisor’s qualifications, approach, and commitment to your financial success. Remember that open communication and a clear understanding of the advisor’s services and fees are essential for a successful advisor-client relationship. Take the time to find an advisor who aligns with your goals and values, and you’ll be on your way to achieving your financial objectives with confidence.

We at TriStar CPAs are experienced financial advisors who are ready to help you reach your financial goal with individualized plans you can feel good about. Furthermore, we prioritize clear, open communication with all of our clients to make sure they can make informed financial decisions. Reach out to us today for a free consultation! Let’s plan; let’s partner.