Key Questions for Your Financial Advisor

People in Chicagoland have a lot of common sense.  Sometimes that common sense does not carry over into their investment lives.  Here is a little reminder for you in regard to your investment common sense.  When you go to the doctor, you ask him or her for the best medical treatment plan for your health.  When the plumber comes to your house to fix your toilet, you ask about the costs of fixing your existing toilet versus installing a new one.  You even get an estimate of the costs and the services included from the guy who just plowed your driveway after the most recent snow storm.

Well, have you ever wondered what your financial advisor does?  In addition, do you have any idea how he or she gets paid to manage your investment account?  In any relationship like that, there should be a clear understanding of what services are provided and the annual costs of those services.  In order to find out the answers, here are the three most important questions that you need ask your current financial advisor.

First, ask your financial advisor the “tell me what you do” question.  Get a detailed reply about what services he or she provides in regard to the investment management on your investment account.  Don’t settle for the standard asset allocation, diversification, and “buy-and-hold” financial industry rhetoric.  Those answers are fall into the category of financial mumbo jumbo.  You need to know that there is an investment management strategy in place when the stock market goes down as well as when it goes up.

Second, ask your financial advisor why he or she expects their investment recommendations for you to be successful in both up and down stock markets.  Every financial advisor’s ideas look good when the stock market is going up.  Make sure there is a plan in place when the economy and the stock market start to fall apart. With the current stock markets near all-time highs, this question is especially important right now.

Third, ask your financial advisor how he or she gets paid.  There is no monthly bill from your investment advisor like the one you see from ComEd or Comcast.  Don’t think for one minute that there are no commissions or advisory fees coming out of your investment account.  You don’t work for free.  And neither does your investment advisor.  You need to find out how you are paying your current financial advisor for the services provided to you.  Ask them exactly what the commissions or fees are on the financial products being suggested, or that you already own (especially the commissions).  Ask for that number in actual dollars in your case – not percentages.  You may be shocked by the answer.

Cheers,

Ed Downey