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You often hear the advice that you should talk to a financial planner or professional to help you get on track with financial goals, plan for the future and save and invest better.
However, when you find one to talk to, do you even know the right questions to ask? Often, people are overwhelmed by all of the information available to them online and struggle to know which questions to ask.
To help guide you in the right direction, we spoke with two financial planning experts — Khwan Hathai, CFP, CFT, founder of Epiphany Financial Therapy, and Joe Wilson, a registered financial advisor and partner at Ten Point Financial, LLC — about the questions people should be asking their financial planning experts.
Am I On Track With My Retirement Goals?
Hathai said this is an important question because “it’s so easy for life to get in the way of long-term planning. This question keeps the focus on what is often the ultimate goal: a comfortable retirement.”
Does My Investment Strategy Align With My Risk Tolerance?
If you haven’t heard the term “risk tolerance” before, you probably just didn’t know to ask about it. Risk tolerance is how much risk of loss an investor is willing to experience when choosing an investment option.
For example, investing in the stock market is subject to ups and downs that could lead to significant losses (as well as gains). A certificate of deposit (CD) has no risk; you simply let it mature and earn your interest.
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“It’s astonishing how many people aren’t sure of their risk tolerance or haven’t adjusted their portfolios to match it,” Hathai said. “This is vital for peace of mind and long-term success.”
How Can I Be More Tax-Efficient With My Investments?
When you make the right investments, you’re likely to earn money on them, and then the IRS wants its bite out of those profits.
“Taxes are a sure thing, but many people overlook how they can structure investments to minimize the tax bite over time,” Hathai said.
Asking your financial planner how to invest in the most tax-protective way possible is something people may not even consider.
What Am I Paying in Fees, and What Are They For?
Different kinds of investment funds and other financial products, and the companies that manage them, charge a variety of fees that you might not even notice because they’re often deducted in the fine print of your investment statement. So you see only your gains.
“Fees can eat into investment gains significantly over time,” Hathai said, “and people deserve to know what they’re getting for those fees.
If a financial planner is cagey about fees, keep looking.
Have I Considered What My Estate Plan Looks Like?
You might be thinking: I don’t even have an estate — why would I have a plan? The term “estate” simply means your financial assets, from bank accounts to personal property to homes and other assets. Even if your estate is modest, you want to make sure these things go to your designated beneficiaries after you’re gone.
“Estate planning isn’t just for the ultra-wealthy,” Hathai said. “It’s about making sure your wishes are carried out, which matters to people at all income levels.”
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What’s the Plan for My Kids’ Education?
If your children are young, you may be putting off thinking about college, which feels like a long way off.
“Planning for education expenses is often a significant stressor for parents, but not everyone knows where or when to start,” Hathai said.
It is important to ask about it as early as possible so you can develop a financial strategy — such as a 529 plan — and be ready when the time comes.
Hathai theorizes that the reason people don’t ask most of these financial questions is that they feel intimidated.
“Finance can be complex and personal, making it a tough topic for many people to dive into, even with a trusted advisor,” she said.
However, she encourages people to remember that “it’s our job as planners to make these conversations as easy and productive as possible.”
What Is the Biggest Mistake You See Investors Make?
Wilson believes you should ask questions of your financial advisor to align with the right one.
“I think this answer will give you an idea of their investment philosophy and how deep their knowledge goes,” Wilson said. “Simple answers such as ‘People don’t start early enough’ are OK, but something more specific like ‘They focus too much on the risk of losing money and not enough on tracking their spending’ are better.”
Who Will Take Over Your Business When You Retire?
You don’t want to take up with a financial advisor to manage your financial plans only to have the person leave midway through.
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“Many advisors are entering the twilight of their career and the exit strategy may be to sell their book to the highest bidder,” Wilson said. “Be sure you know their plan and whether working with a stranger would be ideal for you.”
Do You Practice Comprehensive Financial Planning or Investment Management?
You want to be sure your financial planner takes a comprehensive approach.
“Financial planning encompasses all parts of your financial health, including consumption and savings planning, debt planning, insurance planning, investment planning, retirement planning, estate planning and income tax planning,” Wilson explained. “Investment management just means they look after your investments. While this is important, it is just one piece of the puzzle. Be sure you have all parts covered.”
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