You finally found a financial advisor who offers the products and services you want at a cost that seems fair. The chemistry is right. Now how do you ensure that your work together delivers maximum results? The answer lies in asking the right questions.

If you’ve worked with an advisor before, you’re probably more accustomed to answering questions than asking them.  Through forms, statements, meetings, and calls, you shared personal information, your goals, net worth, cash flow, taxes, and more. All that data is essential input to the process.

But it’s just the beginning.  That’s because some of the biggest financial planning gems are uncovered over time, sometimes by accident, as the nuances of your unique situation emerge.  What can you do to unearth those benefits sooner rather than later?

Collaboration is king!  In an advisor-client relationship, that collaboration is built on a foundation of common language, two-way communication, and mutual trust. You can play a major role in laying that foundation by asking these 10 questions.

Common Language: Translation Please!

When it comes to using ten-dollar words, the financial world is legendary.  Why everyone doesn’t just speak plain English?   Sometimes it’s puffery.  But other times, it’s because plain English doesn’t convey the intended meaning precisely enough.  Urban legends about the way money works can also get in the way of communication.  According to Cynthia Taradash, MBA, CFP®, ChFC of CVT Financial Planning in Whitefield, NH, these questions can help lower communication barriers.

  1. What is the difference between tax brackets and effective tax rates? “I’m always amazed that everyone thinks that because they are in the 25% tax bracket, all income is taxed at 25%,” observes Taradash. In fact, US tax rates are progressive, i.e. rate increases as income increases, which is a valuable financial planning tool.
  2. What is standard deviation and why is it important to understand? Knowing an investment’s standard deviation clues you into how volatile it will be. This in turn helps you gauge whether it matches your risk comfort level.
  3. Why do bonds lose money when interest rates go up? Prior generations bought and held individual bonds to maturity, lending them their stable, fixed reputation. By contrast, modern bond portfolios are often comprised of mutual funds in which fund managers buy and sell constantly. When new bonds offer higher rates, older bonds – now seen as less attractive – fetch less than face value if sold. Knowing this means your expectations are properly set: bonds aren’t as fixed as their reputation suggests.

So ends our FPSL (Financial Planning as a Second Language) lesson for today!  As you might imagine, there’s plenty more where that came from. While you shouldn’t have to become a CFP® yourself to talk to your financial advisor, the more conversant you are in “money speak”, the better your results.


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Communication Is a Two-way Street

Many advisors schedule at least annual reviews or stay in touch on an ad hoc basis. This works pretty well if things stay more or less status quo. But sometimes things change and life happens between meetings.  That’s why communication needs to be a two-way street. If life happens – or better yet, you anticipate life about to happen – do yourself a favor and call your financial advisor.

What constitutes “life happening”?  That 80’s pop song “Birth, School, Work, Death” wasn’t intended as a list of financial life milestones, but it’s a good start!  Changes in marital status, home ownership, medical expenses, and anything else that hits your tax return qualifies as well.  Kenyon Lederer, CFP®, ChFC, CFS of Pinnacle Asset Management, Inc., in Roseville, CA, recommends discussing these questions with your advisor.

  1. What if I need cash unexpectedly? Hurricane Charley knocks the roof tiles into the pool. Daughter Emma wants to take some college credits early. A minor fender bender totals your car. Even if you have a 0% car loan offer or dedicated savings to pay for these expenses, the obvious answer may not be the best answer.
  2. Should I refinance? In recent years, it seems like everyone has taken advantage of historically low interest rates to refinance at least once. But Lederer still sees clients leaving money on the table by neglecting to refinance less than optimal loans.
  3. How do I make the most of employee benefits? HMO, PPO, EPO, POS, or HSA?  Roth or traditional 401(k)? How much for ESPP, ESOP, cafeteria plan, life, disability? Employees face an alphabet soup of benefits decisions, but when the letters are arranged right, they can spell “opportunity”.
  4. When should I take Social Security? You’ve waited a lifetime and now, to celebrate your 62nd birthday, you plan to give yourself the gift that keeps on giving: Social Security.  But Lederer says: “People often do this too early and lose out. You should look at all your options.”

Remembering to call your financial advisor at critical junctures is only half of the battle.  The other half is bringing yourself to do it at a time when money may be the last thing you want to think about.  But with financial planning, timing is everything.  By staying in touch early and often, you and your advisor can put together strategies that help smooth out life’s big transitions.

Trust and Verify

In the end, all this talk will only get you so far if it’s not based on mutual trust.  To gain that trust, you have to broach some delicate subjects, the kind that Stephanie McCullough of Berwyn, PA-based Sofia Financial sometimes sees people shying away from.  “You don’t have to have all the answers,” she says.  “You have to know the questions to ask – and have the guts to ask them!”

  1. What could go wrong? While financial planning’s emphasis on numbers gives it a cut-and-dried appearance, it is really part art, part science, based on a wide range of factors in an ever-changing environment.  There are no guarantees – and there are always tradeoffs.  “If you’re not seeing the potential downside, you’re probably not seeing the whole picture,” says McCullough. Understanding the pros and cons ensures you know – and are on board with – the tradeoffs being made.
  2. How do you get paid? You have a pretty good idea how your financial advisor is compensated.  Still, nothing undermines trust like finding out the hard way about an unexpected fee. Getting very clear about all costs you might incur can provide insight into whether your advisor’s interests and your interests  are truly aligned.
  3. What happens if one of us starts acting strange… or worse? Most of us are loathe to think about our own mortality.  Witness the mere 44% of Americans who have a will. Further, research suggests that financial savvy peaks at age 53 even for those not suffering from some sort of cognitive impairment.  What client wants to talk about their own demise – or their advisor’s – when everyone’s feeling healthy, wealthy, and wise? But having contingency plans for “what if” is smart.  So ask about your advisor’s succession plans, and document how you’d like him to proceed if something happens to you.

Posing these 10 questions to your financial advisor delivers benefits on multiple levels. First, they prompt a lot of valuable discussion.  Second, they represent an important takeaway for you, the client: you get out of the relationship in proportion to what you put into it.  So to a large extent, the reward you reap is up to you.

Finally, they shed light on one implicit question: Does your advisor welcome your questions as an opportunity to educate, clarify, and deepen understanding?  If the answer is yes, it’s a good indication that your collaboration will result in advice that’s fully dialed into your needs, now and in the years to come.


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Sherrill St. Germain

Sherrill St. Germain

Sherrill St. Germain, MBA, CFP®, is a freelance writer specializing in financial independence. A former fee-only planner, she brings a decade of financial planning experience to content she develops for financial professionals, publications, and her blog Follow Sherrill St. Germain on Twitter.