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4 Initial Questions to Ask a Financial Planner (VIDEO)

By Justin Pritchard August 09, 2021 Managing Money

Things get serious when you’re in your 60s. For example, you may be more selective about how you spend your time and energy, and staying healthy requires more attention than it did in previous decades. 

When it comes to your finances, you’re at a point in life where you may have more money saved than ever before, and your working years are primarily (or entirely) behind you. That can be a big mindset shift. Because of that, you may be considering working with a financial planner to understand your finances.

Does It Make Sense to Get Help?

You’re probably smart enough to figure out a retirement income plan yourself. If you enjoy analytical tasks and researching things like taxes, investing, and retirement-related themes, that’s great. You can use a variety of free and low-cost tools to manage your retirement paycheck, and periodic reviews offer the opportunity to make sure everything is on track.

That said, if you want help, you can get guidance from a financial planner who focuses on these topics every day. Plus, you get to spend your time on more enjoyable things and leave the number-crunching to a professional.

But How Do You Know Who to Trust – And Whether or Not They Can Actually Help You?

Asking the right questions can help you learn a lot about a financial planner. And if you’ve never been down this road, you may appreciate some coaching.

Even if you’ve worked with a planner before, it could be helpful to reevaluate the fit. In your 60s, you may face multiple transitions, such as the shift from building up assets to generating income. For many years, you and your planner probably worked on accumulating savings in a retirement plan like a 401(k) and an IRA. But now, creating income is the name of the game.

Questions to Ask

#1: What Type of Clients Do You Typically Serve?

Determining the right fit is essential. Find out if the advisor works with people like you – and if they have experience solving the types of problems you might face. 

For example, if you’re nearing retirement, a financial planner who is interested in retirement topics is probably an excellent resource. That’s not to take credit away from other planners who focus on different issues (education funding, executive compensation packages, or leaving a legacy to heirs, for example).

But it’s important to work with somebody who has their finger on the pulse of retirement – if that’s the skillset that’s most important to you.

You might also benefit from knowing if you are similar to the planner’s other clients. For example, if you have several hundred thousand dollars and a small pension, is the planner experienced with people like you? A planner who focuses on multi-millionaires might not understand the financial issues you face.

#2: How Do You Stay Up-To-Date on the World of Financial Planning?

Having years of experience can be helpful. But things change (tax rules, best practices, and products, for example), and we can all forget things we learned 20 years ago. Ask this question, and listen for things like:

  • Continuing education presentations from reputable industry sources.
  • Membership in organizations that offer resources and education to the planner.
  • Participation in study groups or “mastermind” groups that can help the planner stay sharp and connected with colleagues.
  • Self-improvement through professional designations (which may require continuing education), but scrutinize those designations to make sure they’re legitimate.

#3: How Do You Earn Money from Working with Me?

It’s completely reasonable to ask how your planner gets paid, as well as how much they earn while working with you. Advisors can argue that their total income is nobody’s business, but you deserve to know how much revenue you generate.

Financial planners might get paid in a variety of ways and understanding those methods can help you make better decisions.

Flat Fees

Flat fee compensation comes in a variety of forms. You might pay a specific dollar amount each year, you might pay hourly charges, or you might pay flat fees based on a “menu” of services. You typically do not need to invest money with flat-fee advisors (but those planners might be able to help you invest, if you want).

Assets Under Management (AUM)

Planners who invest money for you might charge AUM fees. You typically have these advisors handle all aspects of investing, including opening accounts, designing a portfolio, and completing trades. An AUM fee is often stated as an annual percentage, with the traditional advisory fee hovering around 1% per year.

Commissions

Commission compensation comes from selling a product. Planners typically put your money into investments, insurance, or other vehicles. The planner’s compensation is often based on how much you invest or buy.

Other Compensation Methods

Some advisors get more complicated or more creative, and you can evaluate if those approaches work well for you. For example, the planner might bill an annual fee that’s based on your net worth.

While there are several compensation models, the most important thing is that you understand how much you’re paying and who gets the money. 

Tip: Margaret Manning and Pam Kreuger have discussed these compensation models, and Kreuger suggests working with fiduciary financial advisors. Fee-only fiduciaries cannot receive commissions, which helps to reduce conflicts of interest.

#4: Are You Required to Act in My Best Interest?

It’s critical to know if your financial planner is a fiduciary. When that’s the case, the planner is legally required to act in your best interest, and you may have additional legal avenues for advisors who violate the fiduciary standard.

Ask your planner if they will act as a fiduciary at all times when working with you – and if they will put that in writing.

How to Choose

These questions are a good start, and there are many other topics worth discussing before you sign on with a financial planner. 

While the answers to your questions are important, the way your planner answers may be even more telling. If the planner seems happy to share information and address your concerns with transparency, that’s a good sign. But if you notice any evasion, it may make sense to keep looking.

Trust your gut and take your time deciding, and you’ll improve the chances of finding the right partner.

What tips do you have for finding the right financial planner? Are there any questions you’ve asked or problems you’ve dodged? Do you prefer handling things yourself, or have you considered hiring an advisor?

Let's Have a Conversation!

The Author

Justin Pritchard, CFP®, is a fee-only financial advisor who helps clients get clarity on retirement. He has been quoted in The New York Times, Consumer Reports, The Wall Street Journal, and more. Improve your retirement readiness with Justin’s resources for retirement success, available at no charge from ApproachFP.com.

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