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6 Questions to Ask a Financial Advisor Before Signing Up

At the end of the day, an advisor should feel like an advisor—they're there to help answer your questions about your finances. Get these questions answered.

Articles by Fred Egler, CFP®

By Fred Egler, CFP®
Financial Planner, Betterment  |  Published: November 16, 2018

Betterment customers have important questions that are particular to their specific personal situations. We have financial professionals to help answer those questions.

Before you sign up with a financial advisor—or even an online robo-advisor like Betterment—you should get these six questions answered. If you’re sitting down one on one with a professional, bring a list with you. If you’re browsing a digital advisor’s website, make sure they provide clear answers.

1. How will I pay for the financial planning services provided to me?

Many advisors make money through charging brokerage fees when they buy and sell funds, or through pushing their own products. You should know how your advisor is compensated for the services they provide. Consider avoiding financial advisors who exclusively sell their own funds, or who make more money through increasing trades and transactions. Betterment is a fee-based investment advisor, meaning we charge a flat annual fee for the services we provide. That’s it. No additional transaction costs charged by Betterment, no proprietary funds.

2. What qualifications do you have as a financial advisor?

Whether you are planning to invest with a robo-advisor or a more traditional financial advisor, you should review their qualifications. Betterment’s Investment Committee is comprised of industry experts who have a plethora of investment credentials and decades of experience constructing portfolios based on tons of research.

If you are going to interact with a human advisor on a regular basis, you should discuss with them their qualifications, too. We recommend engaging with a financial advisor who is a CERTIFIED FINANCIAL PLANNER™, a designation that professes to hold to a high standard in quality and ethical financial planning advice.

3. How will this financial planning relationship work?

Asking this open-ended question will no doubt lead to a range of different answers, but it can set the tone for a long-term, high-quality relationship with your advisor. You should topics like how often you will interact, how frequently you will review your account, and what actions are required by you on an ongoing basis. The answers to these questions will vary, depending on advisor service levels, so it is important to make sure they sound realistic to you. For example, Betterment recommends you check-in on your investment allocations once per quarter, and if you feel more comfortable with having an in-depth relationship, you can opt for one of our Advice Packages.

4. Are you a fiduciary?

If you hear anything but an unequivocal “yes, I am a fiduciary” in response to this question, then the advice you receive may not fully be aligned to your best interests.

That may sound loaded, but when it comes to your finances, it’s not. Some financial advisors provide advice to their clients that does not live up to the fiduciary standard. In other words, some advisors do not prioritize your interests over their own. This is a big problem when you’re trying to make the right decision for yourself in a given situation. A fiduciary aims to work to put your best interests first.

5. What approach do you take to financial planning and investing?

You’ll want to make sure your advisor’s investing approach aligns with your financial goals. If the approach of a prospective advisor sounds too unrealistic, it may not be the right one for you. For example, hedge funds may suit certain investors, but they are often too risky and expensive for most investors looking for a financial advisor. Betterment offers a goals-based approach to investing, and we use technology to lower fees, diversify your portfolio, and enable better investor behavior. Those key tenets drive how we construct our portfolios.

6. How should I evaluate the performance of my investments?

A financial advisor should be as transparent as possible when it comes to measuring and displaying performance. They should have clear and understandable explanations for underperformance, or for any discrepancies between expected and actual returns of an investment. Ask a prospective financial advisor to walk you through the returns associated with portfolios at various levels of risk instead of asking generic questions like “what does your typical portfolio return?”

Additionally, consider using time-weighted return statistics when comparing the performance of investments to each other, as time-weighted returns are unaffected by the amount and timing of deposits and withdrawals. The clearer and easier to understand performance, the better. The more complicated, the less likely you are to match the performance of your investments with your expectations.

Remember that at the end of the day, an advisor should feel like an advisor—they’re there to help answer your questions about your finances. At Betterment, we aim to do that in several ways. You can get one-on-one advice by purchasing an advice package or by signing up for our premium service. You can learn by accessing the insights and information we publish regularly in the Resource Center. You can also contact our support team, who are there to help you answer basic details about Betterment.

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