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5 questions you should ask your financial advisor

Financial advisors are going to be managing a big part of your future and giving you advice that could have enormous life impact for you, Hamm writes. You should not be afraid to ask financial advisors anything pertaining to their profession.

By Guest blogger / August 26, 2013

Helen Ramos of Fairfield, Calif., shakes hands with financial advisor Tai Mamea following a counseling event for homeowners applying for mortgage modifications in Oakland, Calif.

Robert Galbraith/Reuters/File


A few years ago, I shared a story of a disastrous meeting with a financial advisor. This person did virtually everything they could to convince us to go elsewhere.

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The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.

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While I mostly want to control my own financial planning, I do have some needs that involve specific situations where a financial advisor would be very useful for me, so I’ve spent time in the ensuing years shopping around for one, with some success and some…. well, let’s just say I’ve figured out some people to avoid.

Over that time, I’ve really figured out how to weed out some of the less reputable financial advisors. I’ve found that if I meet one, there are five questions that really help me cut through the situation and give me some material to do some follow-up investigating on my own. I also walk out of the meeting asking myself one key question.

Here’s what I’m always asking. A point of advice: if you’re nervous about asking these kinds of questions, don’t be. These people are going to be managing a big part of your future and giving you advice that could have enormous life impact for you. You should not be afraid to ask them anything pertaining to their profession. 

What areas do you specialize in?
You should ask this before giving much information at all about yourself and your situation to the advisor. Any advisor who responds with “everything” or anything close to that should set off warning bells.

Advisors generally specialize in certain areas. Usually, advisors tend to focus on people who are close to their age, for one, so you generally wouldn’t want an advisor drastically younger or older than yourself. Also, some advisors work better with people who have particular goals in mind, like charitable giving in retirement.

What are your potential conflicts of interest?
A financial advisor who says they have “none” is not telling you the full story.

Every financial advisor worth a dime has some sort of potential conflict of interest. A good one is honest with his or her potential conflicts and knows how to resolve them in a way that minimizes impact on his or her clients.

Thus, a good advisor will be able to tell you at least some of their conflicts of interest and should be able to easily describe how they handle them.

How are you compensated?
Be very wary of advisors who are primarily compensated by commission, as their primary income comes from selling you on particular investment packages.

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