5 Important Questions to Ask Financial Advisor
It is great that you have availed of the services of a financial advisor to manage your investments and financial planning. But that does not mean you wash your hands off financial planning. You have to check in with your advisor regularly. Here are some questions to ask the financial advisor so that your check-in helps you in getting a good overview of your financial plan and its performance –
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1. What is my current net worth, and am I on track with my financial goals?
The advisor must have the net worth figure, a summary of your net worth, and a detailed view of the assets and liabilities readily available for you to view, save, download, and analyze. You should be able to access all this information without going to the advisor each time. They can be sent via regular emails or accessed via a website or app.
It is important to keep an eye on the net worth as it gives you an indication of how you are faring towards achieving your goals and whether you will have a smooth transition to retirement.Â
Red Flag – If the financial advisor is not able to give you an accurate update or does not check with you regarding financial information regularly, they might be neglecting their tasks and will not have a timely and comprehensive view of your financial status.
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2. How is my investment portfolio performing?
Check with the advisor how the investments are doing as a whole. It may not be possible that all investments are doing well at all times. So, ascertain if your portfolio is earning money and the overall value has risen. The portfolio should keep up with the market or beat the average market returns over time. Remember to look at performance numbers at a gross level and net off all costs. Ask the financial advisor for his views on non-performing investments and their view on how to manage them.
Red Flag – If your financial advisor only concentrates on the performance of investments doing well, you may want to raise it with them.
3. What are the different investment opportunities available as of now, and are there alternate investment options or financial products for your recommendations?
Various investment opportunities crop up. New bonds, IPOs, investment products, etc. Discuss them with the advisor to understand if they are suited to your investment portfolio and current circumstances. Understand the returns, risks, etc. of the recommended products. If you suggest a product, discuss the reasons for selection or non-selection of it. Â
If the advisor suggests buying a top-up health plan, explore why they are suggesting the same and why not a new health plan. This will help you identify the rationale behind the financial decisions and validate the feasibility of the decision. New information may be uncovered by either of you or the advisor, which may help optimize financial decisions further.
Red Flag – The financial advisor should recommend products with a low expense ratio and should take time and effort to explain various investment options and the justification for the choices made. If you do not find this happening, you may want to reconsider the decision of continuing with the financial advisor.
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4. Should I rebalance my investment portfolio?
The investment portfolio is never a static item. It changes as per market conditions, personal situations, etc. Moreover, as your investment grows, the allocation gets changed. You may have overallocated in a specific type of asset or realize that you need to reduce your allocation to some non-performing funds. Verify if the investment portfolio needs tweaking such that all your financial eggs are not in one basket.
Red Flag –If you feel uncomfortable with the responses to your questions or the way the financial advisor handles your money or your personal information, you may want to end the relationship.
5. What is missing from my financial plan?
Ask the financial planner if they have all your information (e.g. your address might have changed). Life changes too. For example, you have additional financial responsibilities, or you lose your job. They should be aware of the changes that affect your financial life and take steps to manage the financial plan based on those changes. By discussing your financial plan with them routinely, both of you can identify gaps in the financial plan and optimize it to get better returns and a greater appreciation of value.
Red Flag – If your meetings with the financial planner are irregular and the financial planner is not up-to-date with your financial information, they are not the best fit for your financial life.
It is important for you to know what to ask your advisor so that you are on track with your financial plan. If you are looking to hire a financial planner, find out how to select a competent advisor.
