Five Things to Ask Your Financial Advisor

Financial Advisor

Image courtesy Sigma Investment Counselors

The decision to hire a financial advisor is not one to be taken lightly. After all, this person will be handling your financial future; you want to be sure you hire someone you can trust. There are many things you want to keep in mind while choosing your advisor, but here are a few of the most important questions you should ask any potential advisor:

How Are You Compensated?

Know exactly how a financial advisor plans to charge you. A reputable financial advisor will be up front about their fee structure. Some might have an hourly fee, others might charge by the project or based on the amount of assets they manage.

What Are Your Credentials and How Long Have You Been Working?

When looking for a financial advisor, you’ll see lots of names followed by acronyms such as CPA, CFP, and RIA. Ask them to explain exactly what those acronyms mean and what kind of work went into earning those credentials.

What Type of Clients Do You Typically Work With?

Many firms tend to work with a certain type of clientele and you want to be sure the advisor you work with is someone who will understand your unique needs. For example, if you’re a divorced woman looking to build a modest stock portfolio, an advisor who usually works with businesses and corporations isn’t going to be the best fit for you.

Ask for a Sample Financial Plan

There’s no one standard format for financial plans so one advisor might give you a plan that is very straightforward and another might give you a plan that is far more complex and in depth. You don’t want to be getting financial reports you simply do not understand.

Do You Accept Fiduciary Responsibility?

If an advisor accepts fiduciary responsibility, this means they have a legal obligation to solely work in your best interest, not theirs.

For more questions to ask your advisor, the Securities and Exchange Commission (SEC) has a great list of suggestions.


How Millennials Are Investing

Much like the generation that grew up during the Great Depression, studies have found millennials are very hesitant about investing their money. Many millennials graduated from college just in time for the 2008 recession and struggled to find work in an uncertain job market, facing long periods of unemployment. Those who could find jobs were often forced into taking low-paying jobs just to get by, and between student loan debt and other necessary expenses they simply didn’t have money to invest. Others who weren’t fighting for jobs likely witnessed the impact the recession had on their parents’ investments and have decided not to take the same risk. Instead, many millennials are preferring to keep their money in something they feel is more secure — cash.

Millennials and Investing

Currently, adults aged 21-29 are typically putting about 28% of their money in stocks and keeping about 52% in cash. Non-millennials typically have about 48% of their portfolio invested in stocks and only about 23% in cash.  Although keeping their money out of the stock market may seem like the safer choice, but the main drawback to saving that way is that money can’t grow if it isn’t invested, which is going to make saving for retirement even more difficult for millennials who already had the disadvantage of entering the workforce at a very turbulent time. The millennials who haven’t been scared out of putting their money in the stock market tend to be more conservative investors and view their investments as being sort term.

Millennials who do consider investing also prefer to get advice from their parents or a reputable investment counselor. If they’re going to take the risk of investing, they want the guidance of someone they can trust to make sure their money is being invested as wisely as possible.

Four Things to Consider Before Investing

  1. Determine Your Financial Goals

What is it that you hope to achieve by investing? Are you looking to buy a home? Do you want to save money for retirement? Saving money to send your children to college? Once you know your what you want, an investment counselor can figure out the best plan to help make your financial dreams a reality.

  1. Make Sure You’re in a Good Position to Invest

Before investing money, be sure you have no other pressing needs to be taken care of first. Pay off any outstanding credit card debt so you aren’t throwing money away on interest rates. Make sure you have a healthy emergency fund saved up. An emergency fund should have enough money to cover 3-6 months worth of living expenses in the event of sudden unemployment or other crisis.

investing for your future

  1. Consider Several Investment Opportunities to Diversify Your Portfolio

When it comes to investing, there is safety in numbers. Investing all your money in one or two ways is a bad idea because if one of them takes a hit, you have nothing else to fall back on. But if your portfolio is sufficiently diverse, your other investments should be able to soften the blow of one investment not performing very well.

  1. How Much of a Risk are You Willing to Take?

All investments involve taking a risk of some sort. It’s up to you to decide if you want low risk investments or high risk opportunities.