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The Top Questions Your Investment Advisor Should Be Asking to Personalize Your Financial Plan

When choosing a financial advisor, you will likely have a list of questions for your top candidates. You’ll want to know whether the advisor is a fiduciary, their investing philosophy, and logistics like how they communicate with clients. Interviewing a financial advisor should not be a one-way street. A good financial advisor should also have detailed questions for you to get a better understanding of your needs and goals to be able to make sure you are a good fit as a client.

At Ridgewood Investments, potential clients can request a free investment consultation, In our pre-qualifying conversations we discuss many of the questions below to help us mutually assess whether we might be a good fit for each other.

Why are you seeking independent financial advice?

Just like at the doctor’s office, “what brings you here today?” should be one of the first questions you are asked by your advisor. People seek out financial advisors for many different reasons  and a good financial advisor will want to make sure they have the knowledge and experience to address your primary needs. Some common reasons for seeking an advisor are:

  • An increase in income or an inheritance that you need help managing
  • Time constraints that make managing your investments difficult
  • Desire for advice in one or more specific areas, such as tax saving strategies
  • A life change such as retirement, a new baby, marriage, etc. that could impact your financial outlook or trigger the need to make a change
  • Starting or growing a business

Before meeting with a potential advisor, think about exactly why you are seeking financial advice and what you want out of the relationship. Do you want advice in a specific area? Do you have an existing financial plan that you want to get feedback on and tweak? Do you hope to be mostly hands-free with your finances? Articulate exactly what you want out of your relationship and make sure your financial advisor’s responses to your answers indicate that they are well-prepared to address your financial needs.

What are your short-term and long-term goals?

If your financial advisor doesn’t know where you want to go, they will have a hard time getting you there. A comprehensive financial plan is built around your goals for the future so your advisor should be asking what your personal goals are in order to be able to personalize your plan. Let your advisor know your goals in the following areas:

  • Entreupenurship - Do you own your own company or plan to start one? If so, choose an advisor with a business background and experience helping other entrepreneurs. 
  • Family and Relationships - Marriage (and divorce), having children, and caring for extended family all have significant impacts on how your finances should be balanced. Money that will be needed for college in three years needs to be invested differently than funds that are for earmarked retirement twenty years down the road. Some cultures have a strong expectation that children will care for their aging parents. If that is the case for you, you want an advisor who understands and respects your cultural obligations. 
  • Home Ownership - If purchasing or upgrading a home is important to you, your financial advisor will need to adjust your planning so that funds for the down payment and upgrades are available at the right time. Let your financial advisor know if you are already a homeowner or if you plan to purchase a primary residence or vacation property and what your ideal timeline is for doing so.
  • Retirement - When and where do you hope to retire? Your financial advisor needs to know your timeline to structure your investment portfolio.
  • Travel - Is travel important to you? Now or during retirement? Your financial advisor can make sure you have funds available each year to see the world.

If a financial advisor does not ask about your goals or seems dismissive about what matters most to you, it’s time to move on or keep searching.

What are your most pressing financial concerns?

In addition to your goals, your financial advisor should be asking about what money issues keep you up at night so that they can make a plan to mitigate your concerns. Common concerns include:

  • Changes to Your Family - If your family will be growing (marriage, adoption, birth, etc) or shrinking (divorce, death), you likely have specific concerns about the financial implications. 
  • Debt - Do you have existing debt? Are you concerned about taking on a mortgage, student loans, etc. in the future? A good advisor can help you come up with a plan to pay down high interest debt quickly. For low interest debt, like a mortgage at 3%, putting extra payments into the loan means missing out on stock market gains. Your advisor can show you the numbers so that you can make informed choices.
  • Healthcare - Healthcare in the United States is expensive. If you are or will be caring for a chronically ill family member or someone needing end of life care, your advisor can help you come up with a tax-effective plan to fund the care. 
  • Paying for College - Many parents stress about rising tuition costs for their children. For high income parents who do not expect to get any need-based aid, coming up with a tax-effective plan to save money is important.
  • Retirement - If you think your current nest egg will not be sufficient to live the lifestyle you want during retirement, your 

Just like with your financial goals, you want a financial advisor who understands your concerns and can offer concrete steps to mitigate them.

Where is your money now and what income do you currently have?

To create a personalized investment plan, your advisor needs to know where your money is now and how much you have coming in. If large amounts of your money are tied up in illiquid assets like real estate, your financial plan will need to reflect that reality. Making a list of your accounts and their approximate balance and type (savings, checking, stocks, etc.) will help your advisor get a clearer picture of what needs to be changed to reach your goals and address your concerns. Your advisor may ask to see your most recent tax return to understand your income and make sure their investment decisions don’t carry unnecessary tax burdens.

How do you usually make financial decisions?

Your advisor will want to know how you have been making financial decisions up to this point. If you have been working with a different financial advisor, explain why you are making a switch and what you hope will be different this time. If you have always self-managed your money, explain why that is no longer working for you. 

Do you make some or all financial decisions jointly (with a spouse or business partner, for example)? Your advisor may want to speak with those individuals as well so that everyone is on the same page to create and execute your financial plans. 

Your advisor may ask you where you get your financial advice and why you trust those sources. Do you run every investment decision by your uncle because you admire his financial growth? Do you follow podcasters and vloggers for advice on emerging areas of investment to make sure you don’t miss out on trends? Knowing who you’ve trusted for financial advice historically and why can help your advisor address your goals and concerns in the future.

How do you feel about risk? What emotions do you have around money?

Investing strategies and philosophies vary widely among advisors and carry different amounts of risk and reward. Your advisor will want to know your comfort level with risk in your investments. A good advisor will take steps to mitigate unnecessary risks while recognizing that some risk is necessary to maximize gains. Your advisor can personalize your portfolio to match your risk tolerance and emotional risk set points and advise on the tradeoffs involved at various levels of risk exposure. 

Money is emotional for almost everyone. How you grew up, how your parents managed money, when and how you learned about financial issues, and how secure you feel at this point in your career can all affect how you make financial decisions. Every time the market drops, we see large numbers of well-educated investors pull their funds into cash even though that means they miss out on the gains that follow when the market recovers. The intense fear of loss overrides their knowledge of the cyclical nature of markets even when they logically know better (for more on this phenomenon, see our article on Solomon’s paradox).  A good financial advisor will ask about your emotions managing money so that they can help you avoid your own worst impulses and build safeguards into your plan so that you feel confident about how your money is allocated to help you achieve your long-term and short-term objectives no matter what happens in the markets in the near term.

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About the Author

Kaushal “Ken” Majmudar, CFA founded Ridgewood Investments in 2002 and serves as our Chief Investment Officer with primary focus on managing our Value Investing based strategies. Ken graduated with honors from the Harvard Law School in 1994 after being an honors graduate of Columbia University in 1991 with a bachelor’s degree in Computer Science. Prior to founding Ridgewood Investments in late 2002, Ken worked for seven years on Wall Street as an investment banker at Merrill Lynch and Lehman Brothers where he has extensive experience working on initial public offerings, mergers and acquisitions transactions and other corporate finance advisory work for Fortune 1000 companies. He is admitted to the bar in New York and New Jersey though retired from the practice of law.

Ken’s high level experience and work with clients has been recognized and cited on multiple occasions. He is a noted value investor who has written and spoken extensively on the subject of value investing and intelligent investing. He has been a member of the Value Investors Club – an online members-only group for skilled value investors founded by Joel Greenblatt, SumZero – an online community for professional investors, and has also written for SeekingAlpha – among others. Ken is active in leading professional groups for investment managers as a member of both the CFA Institute and the New York Society of Securities Analysts.