November 25, 2013, 5:00 am

Secrets Your Financial Advisor Should Tell You

by: The Financial Blogger    Category: Financial Planning
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Most people I know deal with a financial advisor. It makes total sense since we can’t be good at everything and personal finance is probably one of the most important things in your life. If your finances are not in order, you won’t be able to do what you like and financial problems often lead to high levels of stress. This is why we all look for a financial advisor to help us take care of our personal finances. As is the case with any other job, some financial advisors are awesome while others are clowns. Let’s just say that it’s harder to find a good advisor than most people expect!


We are often stuck with very few options when its time to find our financial advisor. We either go to the bank we do business with and pick the guy or the gal who’s available or we ask our entourage for a referral. You may have been solicited as well by people who promise that they are better than who you have right now. It might be true (if it’s me calling…lol!) but how can you really tell the difference between a professional and a clown?


The answer is easier than what you think…For each industry, there are some “secret facts” known by those who work in the field and may be ignored by others. If you want to know which car breaks down more often, don’t ask the dealership, ask a trusty mechanic. It’s the same thing in the financial industry; the professional will tell you about his secrets

#1 How much he earns

The first question you should ask your advisor is how much he earns and what pays him the most. Money drives everything, once you know how your advisor is paid, then you know how he can help you… or waste your time.

#2 Should I pay my debts?

If you have money sitting in a cash or money market account and you have an outstanding debt at 6%, sound financial advice would be to use your cash to pay off your debt. Most advisors will ignore this principle since each time you withdraw money from their  your account, they lose money.


#3 Are you worth your rate?

I don’t believe the best financial advisor is the cheapest one. Your mortgage rate may be higher or your banking fees might be competitive but not the cheapest in town. However, if your financial advisor picks up the phone to advise you about finance without you asking for anything; this guy worth every extra penny you paid. Ask your advisor why he is more expensive – the right answer is “because I am worth it”.


#4  What’s good about my investment?

A good financial advisor won’t be afraid to tell you that a part of your portfolio (or even the whole investment) is well invested even if it’s with a competitor. The point is that you ask him to be honest; if you are doing the right things he must be able to tell you.


#5 Insurance is incredibly profitable

If you didn’t know yet, one of the best secrets of the industry is that insurance policies sold are incredibly profitable for the advisor (and his firm). Ask him how profitable the insurance you purchased from him is… and wait for his answer.


#6 Insurance shouldn’t be sold with fear

I’ve ran into too many insurance agents selling insurance based on the clients’ fears. Insurance needs are real, fear isn’t. Therefore, ask for a realistic proposal with numbers that make sense for you. I once saw a permanent life policy of $300K for a client who was sitting on $1M cash in his company…. What are the odds he needs an additional 300K upon his death if the company is already full of cash?


#7 He doesn’t call all the shots

Regardless of which firm your advisor works for, he doesn’t call all the shots. It’s better for him to be upfront and tell you that a credit department or a compliance board will have the final say in your application. It’s better if he’s transparent.


#8 Mutual funds are good even if they are expensive

Yes, mutual funds can be seen as expensive and they are if you compare yourself to a DIY investor who picks his own ETFs. However, when we make this analogy, we don’t consider the time and passion invested by a DIY investor to manage his portfolio. If you ask any mechanic about an oil change, they will all tell you it’s stupid to pay for that since you can do it yourself. Well, when you don’t want to take care of something, you might want to pay a professional to do it for you. This is why mutual funds can be good for investors who don’t want to manage their own portfolio.

#9 How much it will cost if you leave

Some advisors don’t have any penalties attached to their investments or mortgages while others charge a final bill if you ever leave. This is important to know the complete structure of your personal finance and to understand if you are attached to your advisor (and his company) or not. It’s not necessarily a bad thing, but you need to know before your sign-up!


#10 Why he is doing this job

I believe personal finance is more personal than financial. Therefore, the most important thing when you deal with a financial advisor is to be able to trust him and get along with his way of working. A simple question that will tell you a lot about the guy/gal in front of you is “why do you do this job?”.


Here’s my answer:

Because I love the stock market, I love to talk about finance and love even more when I can teach finance to other people.


This will tell you if he will stay in his job or not!


What else? Do you have any tricky questions to ask your financial advisor?


Readers, do you have any good questions you would like to ask your financial advisor? What do you do before you can trust him?

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Great list of questions. How about how much the advisor is worth? If she’s not doing that well with her money, why should I let her manage my money…

Great list and certainly quite a few things in here that I would never think of asking my financial adviser. I like the ‘chutzpa’ in some of these questions – after all, it’s our money and we are working WITH the adviser on securing it, not FOR him/her.

More than a question for the adviser, I think a question you need to ask yourself is: do you feel comfortable working with this person? Does he/she seem trustworthy?

When it comes to anything regarding my money, I always go with my intuition. If something tells me that this person is not the right adviser for the job, I move on.

A few questions:
What do you typically get asked? (Any of these)?
What pays you the most? (how do you answer this)
You reference some advisor being more costly..(are they not all on some form of commission? and there is not typically an upfront cost to the customer (or so it would appear)

by: The Financial Blogger | November 26th, 2013 (6:14 am)

Hey Joe,
I think the real value of an advisor is found in the quality of his/her advice and the global support. If all you get is a portfolio statement and a call every year, your advisor is not worth much. But if you get constant communication and your advisor is taking position on interest rate, the market, and educate you, then it’s worth every penny you pay in fees.

Hello Ronnie,
You are totally right – an advisor is more than just the guy sending you a statement every quarter. If there are no connection and no relationship, this is probably not the right advisor for you!



Sweet post 🙂


[…] Secrets Your Financial Advisor Should Tell You […]

” I once saw a permanent life policy of $300K for a client who was sitting on $1M cash in his company…. What are the odds he needs an additional 300K upon his death if the company is already full of cash?”

The odds are actually pretty good, but we don’t have enough information to answer: if he dies, how long would it take to get that money OUT of the company, and can it be done tax-efficiently? Are there other owners involved in the business? does he have debts? does the business have debt? If it takes months (or longer) to get the money out of the business, can his family manage the debts and final expenses and legal expenses and probate and all the rest without any extra money and without his regular income? Chances are that’s what the $300k is for. Also, is he paying for the policy personally or is the business?

While I like most of your post, it’s good for readers to remember that nothing is as black and white as it may seem in a one page blog post, which is why a good advisor *is* worthwhile–we sort through all of these uncertainties and help our clients figure out the best course of action. 🙂

Should one get the insurance then or stay away from it?

Most advisers I talked did not tall me the cost to leave until I asked them.

by: The Financial Blogger | December 5th, 2013 (6:43 am)

Hello Holly,

you highlight good questions. However, my point was not to make a case study with this particular client. In fact, in this specific case, the guy had a will, the money was sitting in a holding company in cash and there wasn’t any debts outstanding. The holding company share could be transfer to his heirs and then, they could withdraw dividend from it as they wish. No need to pay for an expensive 300K permanent life while he leaves.

You clearly don’t understand permanent insurance, or how high-net-worth families use them. Suffice it to say that he owns the policy precisely because he doesn’t need it! It’s an investment! This persons’ return on premium (the tax free death benefit) will far surpass anything he’ll get in the stock or bond market. Sadly, it’s only the millionaires amount us that can afford such a wealth maximizing strategy.