Questions Ask Financial Advisor

I am interviewing potential financial advisors. What are some good questions to ask in order to choose one that will work best for me?

First, ask if he/she is a certified financial advisor. Also, you want one that is fee only, and doesn't receive commisions on the product he endorses. You want an unbiased opionion of the invests he/she is suggesting.

2006-01-26 08:04:42 by leydent

A. Scott White, Certified Financial Planner and President of Scott White Advisors, presents questions you should ask when interviewing financial ...

I am a 28 year old school teacher and am meeting with a financial advisor to discuss my options for the best way to manage my meager earnings.

1. Can you explain your practice of asset location?
This question will elicit a blank stare from many advisors. Perhaps they'll ask, "Do you mean asset allocation?" To which you'll reply, "No, I mean asset location" -- which investments should go in tax-advantaged accounts like IRAs, and which should stay in taxable accounts.

This is a crucial decision, one that can add 15% to your after-tax wealth (according to research done by economists Robert Dammon, Chester Spatt, and Harold Zhang). Some investments have built-in tax advantages, which are nullified if those investments are placed in tax-deferred accounts. For example, qualified dividends are taxed at no higher a rate than 15%. However, if those dividends are withdrawn from a traditional IRA, they'll be taxed as ordinary income -- as high as 35%. Make sure your advisor knows all the tax consequences of placing different investments in different accounts.

2. What percentage of assets can I withdraw from my portfolio in retirement?
If you plan to retire in your 60s and your advisor responds with a recommended withdrawal rate higher than 5%, strongly consider heading for the door. Numerous studies have shown that the withdrawal rate that would have survived any 30-year period over the past 130 or so years is just around 4%. It's a very safe withdrawal rate, so some will argue that 5% is manageable if you can alter your lifestyle based on market conditions. But anything higher is taking on a big risk that you'll outlive your money.

3. When should I begin receiving Social Security benefits?
There's no one right answer to this question -- you just want to make sure your advisor knows the rules. You have a "full retirement age" (FRA), the age at which you'll receive your full Social Security benefit. For example, the FRA for people born in 1941 is 65 and eight months. The FRA gradually moves up to age 67 for people born in 1960 or later. You can begin receiving Social Security before then -- as early as age 62 -- but then your benefit will be reduced permanently. And if you take the benefit early, but continue working, you'll have to give back one dollar in benefits for every two dollars earned from work above an exempted amount ($12,480 in 2006).

This should be a pretty easy one for an advisor to answer. If your advisor can't give you a convincing explanation, you know you haven't found the advisor for you.

4. To whom should I leave my IRA -- my spouse, my kids, or my estate?
Here's a crucial aspect of estate planning that you (and your advisor) must remember: The beneficiary form you fill out for your investment accounts and insurance policies trumps your will. Did you name your ex-spouse as the beneficiary on your life insurance policy, but state in your will that your current spouse gets that money? Guess who will get it when you join that Great Golf Resort in the Sky? That's right -- the ex-spouse.

This is an even more important point when it comes to IRAs. If you don't leave it to anyone -- or just leave it to your estate -- it may have to be liquidated soon. However, if you do right by the beneficiary form, your heirs can keep that tax-advantaged growth going for years and years. The exact solution varies by individual, but generally, you should make your spouse the primary beneficiary, with your kids as contingent beneficiaries. If your advisor has a different recommendation, make sure there's a good reason for it.

A couple of bonus IRA questions for your advisor:

"I'm not yet 59 1/2, yet I might need to take money out of my Roth IRA. Can I do that without paying taxes and penalties?" The answer: Yes, as long as you take out the contributions. The earnings may be subject to taxes and penalties.

"What should I do if I inherit an IRA?" The answer: Do not try to put it in your own name. Rather, keep it in the decedent's name, but for your benefit -- something like "Charles Dickens, deceased, IRA for the benefit of Charles Dickens, Jr. as beneficiary."

5. Are you going to ask me about my debt?
Any good financial plan begins with a discussion of how much someone owes. Any financial advisor who doesn't bring up debt at some point isn't looking at the whole picture. Of course, if the advisor gets paid via commission, he or she has no incentive to ask about this -- more money stands to be made if you invest your extra cash with him or her, rather than pay off debt.

Now, some debt is OK -- for example, many good advisors recommend that people never pay off their mortgage. There are solid reasons for that (as well as reasons to pay it off). But high-interest credit card debt should always be paid down first -- and any advisor who doesn't ask about debt isn't doing a thorough job.

Keep your advisor accountable
The best defense against exploitation is knowledge -- even if you work with an advisor, you have to know enough to know whether the advisor knows what he or she is doing.

2007-01-12 18:17:46 by duncan_grl

Price: $10.99

For an organization I am in, I have to have 2 questions to ask this guy and I have to submit them by today. Any Ideas??

Given the size of the reason Govt Stimulus packages, how will we avoid inflation?

2009-03-06 09:46:15 by sugar142

Price: $30.00

Besides the following

Under performance of market benchmarks over the last 10 years.

High fees not compensated by over performance of market

Fees / selling nightmarish when trying to figure out gains / losses for tax purposes

Lack of ability to reach a human after 5 p.m.

A voicemail system that has only one response in the end - dumping the call.

Unwillingness to acknowledge the problems.

Just move your account and chalk up the experience as a good eduction in why you should manage your own finances. Then you have only yourself to blame, no one else.

2008-01-26 04:53:21 by Jeffrey C

when a client go to a financial advisor , what kind of information the advisor collect from the client?

Depends on what kind of advice you want from them.

Financial stuff. Like how much do you make? How much do you have in savings and assets - and what kinds of investments you have. How much and what kinds of debts. What your future goals are. How much do you spend? What your risk tolerance is. Anything that can help you figure out a budget, and figure out what your net worth is. Maybe your last income tax form.

If you want really good advice from the advisor, you should gather up all this information in an organized fashion. Also make a list of any questions you have for them so you don't forget to ask.

2006-10-14 09:12:47 by syed a