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3 questions to ask your financial adviser

The answers you get can help improve your financial future

Published: November 07, 2014 02:30 PM

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How do you ask the hard questions of the people who have the greatest impact on your financial well-being? A good financial adviser, for instance, can help you gain the edge you may need to make your savings grow and last. But you need to know what to ask. Below are three queries to start with, and to continue asking periodically throughout your relationship with your adviser.

What are you costing me at the end of the day?

Fees can erode your portfolio’s return faster than snow melting in July. The typical annual fee charged by a fee-only investment adviser is 1 percent on the first million dollars of assets under management. It seems straightforward, but adviser compensation can be just one of many charges. Is there a charge for buying and selling assets? If so, it may make sense to negotiate a lower annual advisory fee. Are there management fees and/or loads—an additional cost to buy and sell—on recommended products? If so, can the adviser recommend similar no-load funds, exchange-traded funds, or index funds? The average managed equity mutual fund charges 1.3 to 1.5 percent, with some international and specialty funds soaring to 2 percent, so it’s a good idea to inquire about switching to lower-cost exchange-traded funds and index funds.

How much will I really need in retirement, and do I stand a chance of getting there?

Most financial websites have online calculators that plug in your current savings, your income, and the time before you’d like to yank the escape cord; mix it up with a hypothetical inflation rate and rate of return; then spit out a number estimating the size of your portfolio at that date. But a good financial adviser can do more. She can help calculate your post-work budget and whether it’s realistic based on your assets and income. She can assess the impact of worst-case events: a stock market slump, for example, or soaring medical costs. Most important, she can format a tax-efficient strategy for withdrawing your savings so that your nest egg lasts even longer.

For no-nonsense, unbiased investment advice and answers, check out Consumer Reports' Investing Center.

Am I taking too much risk with my portfolio, or not enough?

One of the biggest dangers in investing is picking investments that you can’t comfortably live with. If the risk is more than you can tolerate in a down market, then you’ll panic and sell when you shouldn’t. The flip side is avoiding risk to the degree that your returns can’t match inflation. A financial adviser should be able to work with you to decide a level of risk that’s acceptable and appropriate for your stage in life, your financial situation, and your emotional well-being.

Editor's Note:

This article also appeared in the October 2014 issue of Consumer Reports Money Adviser.


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