Whether you're just starting to save for retirement, or you've been investing for years, it can be a smart move to turn to a professional for guidance. But before you choose one, here are 10 questions to ask a financial advisor about retirement.
- A financial advisor can make recommendations and provide guidance to help you plan for retirement.
- You pay an investment advisor at an hourly rate (fee-only advisors), a fixed annual retainer, or a percentage of your assets.
- Make the effort to find the right financial advisor—you could be working with them for years.
Before you decide on a financial advisor, make sure you'll be getting the services you require and the advice you need. The best way to do that is to ask the right questions. If the answers are unsatisfactory or incomplete, you may want to keep looking. Your retirement is far too important to leave to chance.
1. What Do You Like About Your Job?
No matter what type of professional you're looking for, it helps to find someone who likes their job—and who isn't just punching a clock.
Ideally, your financial advisor will enjoy helping people and have a passion for all things finance, whether that's helping you budget, pay down debt, manage healthcare costs, develop tax strategies, build wealth, and ensure you have enough income in retirement.
Body language says a lot. Is the advisor making eye contact with you, smiling, and using hand gestures while speaking (that's good)? Or are they slumped in a chair, distracted, and staring at their phone (that's a red flag)?
2. Which Services Do You Provide to Your Clients?
Your financial advisor should offer services that will help you solve the problems you may face in retirement. That includes helping you:
- Figure out how much you need to retire, and set savings benchmarks to get you there
- Pick investments that match your risk tolerance and time horizon
- Develop a long-term investment strategy
- Rebalance your investment portfolio
- Manage your expenses now and in retirement
- Make plans for long-term care
- Create a favorable tax strategy
3. What Are Your Qualifications?
In general, you’re looking for someone with advanced financial and retirement-planning education. Designations to consider include Certified Financial Planner (CFP®), Chartered Financial Consultant (ChFC®), and Chartered Life Underwriter (CLU®).
Another credential high on the list is Retirement Income Certified Professional (RICP®), which involves retirement-specific planning training and education. Verification sites such as Designation Check can help you search for a qualified professional, or verify that the certification they claim is accurate.
Anyone who purports to be a retirement advisor should be a fiduciary.
4. Are You a Fiduciary?
"Fiduciary duty" is a legal term that means that one party has the obligation to act in the best interests of the other party. You want your advisor to point you toward investments that are in your best interest—not theirs.
It’s great if the two coincide, but yours should come first. A hint: fee-only advisors are more likely to assume fiduciary duty than those who work on commissions.
5. How Will I Compensate You?
It’s important to know upfront how you’ll compensate a potential retirement advisor. You should ask whether you’ll pay hourly, per transaction, or annually, based on the value of your assets. Other advisors may be compensated through commissions on the products they provide.
This isn't to say you should necessarily avoid someone who charges more. A high-priced advisor may well be worth the fee you pay if the results are valuable to you. Be wary of commission-based compensation, however, as it could mean the advisor will steer you into buying products with higher fees.
6. Does Your Firm Hold My Money and Investments?
Your financial advisors shouldn't come into contact with your assets (except for the fees you pay for their services). Instead, the advisor should contract with a reputable custodian, which could be a third party or owned by their firm.
The custodian holds your assets and will also process transactions, collect dividend and interest payments, make distributions, and produce monthly statements. Well-known third-part custodians include Charles Schwab, Fidelity Institutional, Pershing/BNY Mellon, TD Ameritrade, and LPL Financial.
7. What's Your Investment Philosophy?
This is the most basic of questions and one any retirement advisor should be able to answer without hesitation. You should hear about the discipline behind investment strategies and how those strategies will help you achieve an annual return designed to reach your investment goals. This should all be provided in simple terms you can understand.
Also, you should receive information designed to make sure you understand and are able to navigate tax laws and avoid emotional responses to market fluctuations.
8. How Will We Touch Base About My Investments?
You should expect contact on a quarterly basis at a minimum. Monthly is even better. Your advisor should explain every buy or sell transaction, and they should provide periodic reviews of the status of your portfolio, including educational resources if appropriate (or if you ask for them).
9. What Happens to My Money if Something Happens to You?
Your advisor should be able to answer this question in enough detail that you’re confident there’s an exit plan if they retire, leaves the firm for another job, or is otherwise unable to continue serving you. You should know how your financial affairs will be handled and who would handle them.
10. Is There Anything I Forgot to Ask You?
Ending an interview with this question can be very revealing. Even if you think the answer is no, it can demonstrate a level of engagement with a potential financial advisor. Still, there's a chance you missed something during your conversation, and this is a good time for the advisor to bring up anything important.
The Bottom Line
Asking the right questions and listening carefully to the answers you receive helps you decide if there’s a good match. If you’re part of a couple, both partners should feel comfortable with the financial advisor. Philosophy, fees, qualifications, and more all come into play.
Remember, choosing a retirement advisor is not an easy task. You may have to interview several candidates before you find the right one.