10 Questions: Does Your Financial Advisor Pass This Crucial Test?

financial advisor, stressed outBy Jeff Voudrie
Unless you handle all of your financial decisions on your own, the selection of a financial advisor will be one of the most important factors in the success or failure of your overall financial plan (and retirement plan). Simply put, finding the right financial advisor will greatly improve your probability of success and you will feel less anxious and more in control of your financial situation. However, on the flip side, the wrong financial advisor may leave you with an uneasy feeling that your financial future is adrift in an ocean of uncertainty with no one at the helm.

How can you know whether or not you are working with the right financial advisor?

This article is designed to help you answer that question with 10 simple yes or no answers. Simply answer the questions found below and you will quickly find out if your current financial advisor is part of the problem instead of being part of the solution. And in these difficult times, the last thing you want is one more thing that may be putting a drag on your investing returns.

There are different types of financial advisors, but they all portray themselves as doing the same thing. The best place to start your analysis is in defining what you are looking for in an advisor. Admittedly, many investors have had such bad experiences with financial advisors that they’ve ended up lowering their standards and expectations. This list of expectations will raise the bar back to where it should be and represents what I would expect if I were hiring someone to help guide me through the most important financial period of my life. This is the list that I would want my wife to use in the event that I were to pass away.

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The questions below should also add color to the key question, “what’s the purpose of using a financial advisor?” Investors who are retired have a tendency to underestimate their own financial abilities and to overestimate those of the typical financial advisor. Yet the average retiree that has successfully set aside a nest egg probably has considerably more money management experience than the typical advisor! Think about the actions that you had to take in order to build that next egg. You had to spend less than you made. You had to live beneath your means.  You had to make wise decisions regarding the purchase of homes and cars. You had to determine how to allocate your limited funds among the unlimited possibilities. All of those traits give retirees a solid foundation for managing their money.

So you shouldn’t be looking for someone to take control over your retirement savings as much as you should be looking for someone that you can employ to help you. The idea is that you want your financial advisor to act on your behalf, doing the things you’d do if you were a knowledgeable, informed, and experienced investor.


noun \ˈpräk-sē\

plural prox·ies

Definition of PROXY: the agency, function, or office of a deputy who acts as a substitute for another

Think about it: when you engage a financial advisor you are hiring them as an employee to do what you want done, to act on your behalf, so that you can focus on the things in life that are more important to you—without neglecting the oversight of your financial future.

financial advisor, super heroHere are the 10 questions you need to ask yourself about your current financial advisor or anyone that you are considering hiring as an advisor. Note that ‘he’ is intended to be read in a gender neutral manner.

1.  Does he place my needs above his own and are his compensation methods designed to reflect that? Is the advisor’s compensation directly tied to the success or failure of your account?

2.  Does he help me in the development an overall framework that will guide my decisions and activities over the next decade or two?

3.  Does he closely monitor the global markets, news and trends and use that information to better position my investments based on what is ahead, not what is behind?

4.  Does he dynamically make adjustments designed to optimize my risk/reward ratio as events and trends dictate, so as to manage the overall level of risk and keep it consistent with my tolerances?

5.  Does he provide unbiased advice on the type of investments that should be used based on my unique circumstances, goals and priorities; avoiding one-size-fits-all approaches?

6.  Does he determine when an investment should be bought and sold or does he rely on others to make those vital decisions?

7.  Does he actively participate in the day-to-day management of my accounts or is that responsibility delegated to someone managing accounts ‘in bulk’ for thousands of people?

8.  Does he closely monitor the account on a daily, weekly and monthly basis to make sure they are performing within my pre-determined risk tolerances?

9.  Does he take pro-active action to protect me from significant losses and are there multiple layers of risk management processes in place to avoid disaster?

10.  To help me uncover, identify and prepare for hidden and/or unexpected threats to my financial situation?

So how did your financial advisor stack up? Many retirees (or soon-to-be retirees) will find that what they are really looking for is what I consider a money manager as opposed to a “typical” financial advisor. Over the years, I have found that the typical financial advisor or wealth manager really serves more of a sales/customer service function. The ‘money manager’ is the one that actually does all the day-to-day work that will ultimately determine the success or failure of your retirement income plan.

If you’d like to find out more about how a personal money manager might impact your portfolio, email me at Jeff@CommonSenseAdvisors.com or  go to www.CommonSenseAdvisors.com.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.


Twitter:  @JeffVoudrie   @seeitmarket

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.