Observing what information they ask and how they gather it can provide you with important clues about how they may assist you in making decisions about your investments and overall financial plan. Here are a few of the questions I find helpful in learning more about my clients, and why these seemingly simple questions are important in the process of developing sound financial advice.
1. How have you managed your money in the past?
This question gives an adviser information about what actions you’ve taken in the past. It may also reveal what has worked and what hasn’t worked, and the “whys” behind both successes and failures in your money history. Some people have spent their life self-managing and arrive at a life transition that causes them to seek help. Others may already be working with an adviser but feel they want to make a change.
When working with couples, this can be a revealing question that helps an adviser to learn more about the dynamic between them. Is someone feeling left out of the process? Is one of the partners taking on more than they are comfortable handling on their own? What is the current tracking and monitoring process?
As we’ve written before, fears about money can stem from a number of prior experiences and often subconsciously affect financial decision-making. By asking this question, an adviser may uncover hidden fears and their sources. When couples know more about how their partner feels about money, they can work toward more clarity and unity in their financial decision making.
2. Can you tell me about your family and your heritage?
Like the first question, this one reveals not only facts about your family, but also your attitudes and approach to your family’s wealth. Your relationship status, how many children you have and the health of everyone in the family are key details needed to develop a portfolio and overall plan that suits your needs.
An adviser should be aware of the core values of your family which often come from how you were raised and the experiences you had in childhood. At a deeper level, the response to this question can help point to family dynamics that could come into play, including common differences of opinion about money matters, influence of others in the decision making or financial responsibilities that might destabilize an otherwise solid financial plan.
As you construct an estate plan and consider your options for leaving a solid legacy, your adviser should be aware of some of the more sensitive family issues such as substance abuse, potential marital instability or special needs of your children or other close relatives. Because these matters can be difficult to reveal and discuss, you’ll want an adviser who makes you feel comfortable and supported when having these more sensitive discussions.
3. Are there any investments you specifically want to avoid?
Your family values may translate into strong opinions about what companies you’re willing to invest in. Your adviser should be aware if you want to avoid certain investments before a portfolio is constructed for you. Socially conscious investing is increasingly available, in part because investors are asking for ways to align their investment dollars with their personal beliefs. Examples include requests to avoid “sin stocks” like alcohol, tobacco or gambling stocks. One caution is that when you’re using mutual funds, it can be more challenging to fully vet all of the funds’ underlying investments. That said, there are ways to screen investments and many mutual funds are already using environmental, social and governance criteria (ESG) in their investment selection process.
4. May I have a copy of your tax return?
Your federal tax return is the single best document to understand your total financial picture. An adviser should be willing to review your tax return and would want to do so to inform recommendations about what investments are appropriate, how to consider potential taxes if you reposition the portfolio and whether you have any tax-loss carryforwards.
In addition to analyzing your past returns, an adviser should be asking about the composition of your sources of income, whether you expect any substantial transactions or changes in the current or future years and whether you’re making quarterly estimated tax payments. A tax return also reveals whether you’ve made retirement plan contributions and the overall health of business entities you own. Bottom line, even if you have a solid CPA, a financial adviser needs to be aware of your tax status in order to make sure their decisions don’t compromise your overall tax burden.
One final note, if someone else is preparing your tax return, you should still review it carefully before signing it. Why? My article, “Never sign a tax return you haven’t read,” explains all the reasons.
5. What money dilemmas are impacting you the most right now?
This happens to be my favorite question, and often is the first one I ask a potential client. It’s one of my early questions because it reveals what each individual is struggling with, and often points to where we can help. My first priority is to understand where to start in solving time-critical matters or aspects of a financial situation that may be causing my new clients stress.
Discussing your most important issues also gives you an opportunity to ask the potential adviser about their ability to respond to the things that matter most to you. Rather than having to fit into their standard process and way of doing things, an adviser should be willing to prioritize how they work with you based on what’s top of mind when you think about your money.
There are many choices in the market, and people who go by the same title of “financial adviser” can — and do — differ greatly in the services they provide. In addition to asking questions about their investment philosophy and how they are compensated, you can learn a lot about an adviser from the questions they ask you. Their intentions and approach may become clearer by:
- How they conduct your first meeting
- What information they gather
- Who is doing most of the talking
See if the adviser is willing to listen to your opinions and if they take the time to learn the details of your life by asking good questions before they recommend a product or financial planning solution for your family. This is the best way to know that the advice they provide is developed specifically for you and your family and not a cookie cutter solution.