It is a wise decision to work with a financial advisor if you are unclear about managing your portfolio or what to do with a sizable inheritance. But not all financial advisors are created equal, and instead of offering you the best guidance for your investments and retirement planning, some may be looking to pad their own wallets through commission-based sales of financial products.
Even though you are depending on your financial advisor’s experience, it is still crucial that you learn about the services your advisor provides, how they do it, and what tactics they are attempting to use. To make sure you are receiving the best advice possible, think about asking your advisor these 10 questions this year.
You can use the information gathered from these inquiries to determine which financial advisor will best meet your needs when choosing one:
Choosing the right stockbroker can significantly impact your investment success. But how do you know if your broker is truly acting in your best interests?
By asking the right questions, you can uncover potential conflicts of interest, understand the fees you’re paying, and gain valuable insights into your broker’s investment philosophy.
This guide provides you with 21 critical questions to ask your stockbroker today along with key points to consider from two authoritative sources:
- The Motley Fool: “The 21 Critical Questions to Ask Your Broker Today” (https://www.fool.com/investing/general/2014/07/23/the-21-critical-questions-you-must-ask-your-broker.aspx)
- Los Angeles Times: “Know the 10 Questions to Ask a Stockbroker” (https://www.latimes.com/archives/la-xpm-1993-12-05-fi-64242-story.html)
21 Critical Questions to Ask Your Stock Broker:
1. Conflicts of Interest:
- What are your or your firm’s potential conflicts of interest regarding incentives to sell particular funds or products?
- What percentage of your total income comes from commissions versus fees?
- What is the total compensation you have received from our relationship since first working together?
- Do you have me invested in any mutual funds with 12b-1 fees?
- Do you receive soft-dollar money from financial-services companies you do business with?
- How much do you receive in revenue-sharing payments from your preferred mutual fund partners?
- Do you, or other advisors at the same firm, get rewarded with trips and other perks for selling certain investment products?
2. Investment Recommendations:
- Why do you recommend this investment?
- What has to happen for this investment to be profitable?
- What is the worst-case scenario if I make this investment?
- How liquid is this investment?
- Are there any comparable investments that would cost less?
3. Fees and Commissions:
- What is the AUM fee charged on?
- Do you discount your AUM fee to reflect my cash balance?
- Do you reduce your AUM fee when you use high-fee active mutual funds?
- How much interest do I receive on cash balances held in my account?
- Do you charge an extra hourly rate if I take up more than a certain amount of your time?
4. Transparency and Disclosure:
- Can I please see your broker compensation page?
- What are the various loads on the funds you sell?
- What percentage of the load fees go to you, and what percentage goes to your company?
- Does the advisor get a different rate of commission for selling class A shares?
- How much does an advisor receive for opening a new account?
- How do the total fees and sales charges for your most popular funds compare with the Vanguard S&P 500 index fund?
- Will you fully disclose these conflicts of interest, as well as any others we may have missed, including upfront compensation, in writing for me?
Key Points from The Motley Fool:
- Your broker may be incentivized to sell certain products that may not be in your best interest.
- It’s important to understand the total cost of your broker’s service, including all fees and commissions.
- You should compare your broker’s fees to the industry average and to the fees of other brokers.
- You should be aware of your broker’s potential conflicts of interest.
Key Points from the Los Angeles Times:
- Many individuals don’t know what questions to ask when evaluating an investment and broker.
- You should ask questions about the investment itself, such as its risk level and potential return.
- You should also ask questions about the broker’s experience and qualifications.
- It’s important to get written materials from the broker, such as research reports and prospectuses.
By asking these critical questions, you can gain valuable insights into your broker’s motivations and ensure that your investments are aligned with your financial goals. Remember, a good broker will be transparent and willing to answer all of your questions.
What Are the Best Options for My Liquid and Illiquid Funds?
With assistance from their advisors along the way, the majority of investors wish to concentrate on liquid savings and retirement. When it comes to personal investments, a liquid savings account is usually the first line of defense, and it can also be one of the primary reasons to speak with a financial advisor. You can save liquid money for random purchases or use it for emergencies. Asking your advisor about the best options for this kind of portfolio can be one of the most crucial initial conversations to have.
Illiquid funds, on the other hand, are kept aside for extended periods of time. This money is being saved for retirement and is frequently kept in tax-sheltered accounts. Usually, access to it is restricted until an investor reaches a specific age.
It’s critical to comprehend how your advisor feels about these two kinds of funds. Both have very different financial strategies, so your advisor should handle risk differently for long-term and short-term holdings. Your advisor should also be aware of your short-term objectives, whether you might require access to funds immediately, and whether you would prefer that these holdings not be as volatile.
Can I Trust My Financial Advisor?
You can decide whether you are comfortable having your financial advisor manage your money by getting to know them better and by asking them questions. Inquire about their credentials, prior experiences, pricing, and philosophy to determine if you would still like to employ and utilize their services.
I Asked Wall Street Millionaires For Investing Advice
FAQ
What questions should I ask a stock broker?
What three questions would you ask a stockbroker before buying a stock?