Questions you should ask your financial advisor

A good resume may get you in the door, but you still need to pass the interview. Here are a few questions you should ask current or prospective financial planners before you trust them.

All advisors should be questioned about their specialty. A search for a local attorney would demonstrate that most specialize in a very specific type of law. Family law, estate planning, and criminal defense are examples. Financial planning also can be segmented.

Some financial advisors see themselves singularly as investment managers and know little about other topics like social security, insurance and estate planning. Likewise, some financial planners may be great at planning but have limited investment knowledge. It is crucial you know who you are working with.

One question that will reveal a lot about your advisor is how they pick their investments. Too many advisors choose investments because of personal convenience or a relationship with the investment firm that somehow rewards the advisor.

Some advisors use only a single mutual fund company. Could this lone company have the best funds for each possible sector? Nope. Having a group of funds from a single company can signify that the advisor has their interest in front of their clients.

With hundreds of thousands of investment choices, advisors must have a system or philosophy for doing what they do.

Advisors who are rudderless can be easily swept away by a clever sales pitch. Asking an advisor how they chose investments provides an opportunity to demonstrate their expertise or lack thereof.

Asking about qualifications is very important. Most applicants must pass the series six or seven exams to work in the investment world. These tests are not difficult and are passable with only a few months of study. Would you take medical advice from someone who had only three months in medical school?

Some designations are difficult to obtain; the Certified Financial Planner (CFP) and the Chartered Life Underwriter (CLU), among others, can signal expertise much higher than other designations. Some of these designations require years of study.

Of course experience is also invaluable and should be questioned. Many advisors gained a lot of wisdom during the tech bubble and credit crisis. Knowing you work with an advisor who has weathered storms should bring peace of mind.

Asking an advisor what sets them apart from the crowd is also revealing. This is an essential question for any professional, especially in the financial services industry.

A lot of financial advice has become commoditized, which means there can be very little difference between the general body of financial advisors. Asking how they are unique can open a door to understanding.

As life expectancy grows, making retirement decisions becomes increasingly important. Choosing the right advisor is more important than ever.