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Equity Financial Group | Investments | Estate Planning | Insurance

Key Questions To Ask An Investment Advisor

Key Questions to Ask an Advisor 

1.  How are they paid and how much?

An investor should always ask an advisor for a clear explanation of how they are compensated. The advisor should provide an honest and straight-forward answer. They shouldn’t avoid the question, tell an investor not to worry about it, or imply that services are free or are paid for by some other entity.

All the compensation an advisor receives should come directly from the investor. Any other sources of income should be fully disclosed including any potential conflicts of interests. Investors need to be aware that advisors that don’t act as a fiduciary can earn commissions on trades, trail commissions on mutual funds and annuities, and bonuses tied to their firm’s proprietary investment products or trading. These other sources of income are a huge conflict of interests.

In general, the annual costs for an advisor has historically hovered around 1 percent of assets under management. Prices may vary based on the overall services the advisor is providing and how often they are meeting with the investor. It’s important to note that advisor compensation structures vary, and some advisors charge for services, collect commissions, charge an hourly rate, or percentage of account value. Everyone needs to get paid for their work; otherwise, they will have no incentive. That said, the client or investor also needs to know the full financial impact, costs and targeted performance, before agreeing to hire an advisor. 

2.  What is their background?

Before people make a major purchase such as a car, television, or refrigerator, it’s likely they’ve done some research to ensure they are making the right decision. One of the most important decisions that any person can make is choosing the right advisor to work with. Many advisors have advanced degrees in business and finance and years of experience as investment analysts or traders at major financial firms. Be wary of an advisor with little or no previous experience outside of their years in brokerage and/or insurance sales. They lack the overall experience and education of providing an investor with the solutions that are in their best interests. It’s amazing that with all the fraudulent and deceptive money-making schemes in the headlines that only 1/3 of people that decide to work with an advisor do not check the background of the person that they are getting ready to hand over their life savings to! It's very important to check the advisor’s background; it may not be an air-tight prevention method, but an investor can easily find out if the advisor has any prior wrong doings on their record.

Here are some sources to conduct a background check on an advisor.

• Financial Industry Regulatory Authority (“FINRA”): A non-fiduciary advisor that is a registered representative is regulated by FINRA. To help investors keep tabs on advisors, they developed a service called FINRA BrokerCheck that is located at

• Securities and Exchange Commission (“SEC”): A fiduciary advisor that is either an IAR or RIA is regulated by the SEC. An investor can go to the SEC web site located at to find out more about the advisor. 

• Certified Financial Planner Board: Before choosing an advisor, an investor should consider if they are a Certified Financial Planner™ professional (“CFP”). CFP practitioners agree to abide by a strict code of professional conduct, known as CFP Board’s Code of Ethics and Professional Responsibility, which sets forth their ethical responsibilities to the public, clients, and employers. Investors can go to to find out if the advisor has had any disciplinary actions against them.

3.  Will they manage my investments?

An advisor that is acting in a fiduciary capacity will usually select a professional money manager to manage their investments in accordance with the investor’s personality (for further information on investor personality, see our “What’s an Investor Personality” Red Paper). Additionally, they will place the holdings with a reputable custodian in a discretionary account, so they can make decisions on the investor’s account that are in their best interests.

An advisor is a lot like a general contractor. They understand their client’s needs and hire subcontractors who are experts in their field and are highly specialized so that their client is getting the best service for that piece of what they are building. It’s impossible for the general contractor to be the best plumber, welder, or HVAC person. It’s the same for an advisor. Real fiduciaries will hire the best money managers for their client’s portfolios. As in the case of the general contractor, for the fiduciary advisor it’s impossible to be the best planner, money manager, or trader, and so on. 

4.  Do they have any conflicts of interests?

An investor should ask the advisor for a copy of their Form ADV Part B. The Form ADV Part B is the uniform form used by advisors to register with both the SEC and state securities authorities. The Form ADV Part B is the primary disclosure document that advisors provide to an investor. It will disclose possible conflicts arising from securities trades and answers a lot of other questions.

As a fiduciary, an advisor owes an investor undivided loyalty, and may not engage in activity that conflicts with an investor’s interests without the investor’s consent. The United States Supreme Court held that advisors have an affirmative obligation of utmost good faith and full and fair disclosure of all material facts to an investor, as well as a duty to avoid misleading them. An advisor must disclose all potential conflicts of interests between the advisor and investor, even if the advisor believes that a conflict has not affected and will not affect the advisor's recommendations to the investor. This obligation to disclose conflicts of interests includes the obligation to disclose any benefits the advisor may receive from third parties because of recommendations to investors.

5.  Will they meet with me and for how long?

Good advisors are great communicators, but at the same time, they only have a limited number of hours. The exceptional advisors segment their clients depending on the list of services each client selects. For clients requiring many services and attention, they may meet with them monthly or quarterly. At a minimum, an advisor should meet with their clients at least once per year or when a client has a significant life change, such as a marriage, death, new job, child, or grandchild.

The length of meetings is also worth discussion. A brief update may be all that is required to put an investor at ease that their assets are being taken care of. This could also be important for newer or younger investors just becoming familiar with an advisor's style or the financial markets in general. Other investors may appreciate in-person meetings at the advisor's office or a lunch or dinner meetings.


Our Risk Management Approach

Managing risk in an investor’s portfolio, as well as managing their expectations about risk, can be very challenging. When markets are up, investors want to know why they aren’t doing better (which would require more risk than may be appropriate for their portfolio). Conversely, when markets are down, investors want to know why they’re losing money (which would require less risk).

Our first step is to have investors answer a 5-minute online questionnaire that covers topics such as portfolio size, top financial goals, and what they’re willing to risk for potential gains. Then we’ll calculate their customized risk number between 1 and 99. This number pinpoints their exact comfort zone for downside risk and potential upside gain. The lower their score, the less risk they’re willing to accept. The higher their score, the more risk they can handle. Once we know their risk number, we then create an investment portfolio that aligns perfectly with their risk tolerance and goals.

In addition, we can also use the tool to analyze the risk tolerance of an investor’s portfolio. Together, we can run stress tests to see how their investments would fare if there were an interests rate spike or an economic crisis. When it’s all said and done, investors feel confident that their portfolio matches their personality and needs.