Benjamin: How to Qualify a Financial Adviser - Three Questions She Should Ask

You may not need a financial adviser. Not everyone does. And if you don't trust your adviser, fire her immediately. It's better to keep looking than to work with someone you don't feel comfortable with 100% of the time.

If you decide you want to interview new advisers, there are three questions they must ask you at a minimum. They are crucial to an adviser's understanding of who you are at your core. Let's go through them:

1. What's important about money to you?

In other words, why do you go to work? What do you value?

Knowing this is crucial because the answer acts as a road map. No…scratch that. These questions really tell an adviser where you want to go financially. For example, you might tell her your main financial goals are security and the ability to spend as much time as possible with your family. The job as an adviser would then be to create a plan that helps you do just that.

But the adviser can't do it alone. You need to do your part too. In the example above, your main goals might be security and the ability to have more time with your family. If so, are you spending, saving and investing in ways that get you closer to achieving that goal or further away?

If you tell the adviser that you save 10% of your income, contribute to your retirement plan and track your spending, she should think that you are consistent. If, on the other hand, you spend your weekends in Vegas, drive leased BMW's, eat out nightly and invest in Chinese penny stocks, the conclusion and plan should be different.

So, if you meet with a financial adviser and she asks you what's important about money, be honest. If she asks you about your spending and investing habits, be honest too. These are the core questions your financial adviser should ask. And if the adviser doesn't ask these questions, find a different adviser to interview. How can you work with someone who doesn't know where you want to go?

2. How much does it cost you to live on a monthly basis?

Once in awhile, I'll meet with folks who are offended by this question. Some people just want to discuss their investments, so why should you insist that your adviser get involved with your spending? Because if your spending is out of control, it doesn't matter how well you invest. Your money will be gone anyway. I met a T.V. commercial producer several years ago. The man was worth $4 million, made $400,000 a year yet he'll never be able to retire. Why? Because even though he made $400,000 a year, he spent $600,000.

I don't care about how much money you earn. I care about how much you spend in relation to your earnings and assets. If any one of these are out of balance, your retirement plan will not work.

Make sure your adviser understands what it costs you to live on a monthly basis and incorporates that information into your financial plan.

3. Make sure the adviser has access to your investment statements, insurance documents and tax returns

If you don't get a good feeling about the person you are meeting with, end it immediately. You don't have to share anything. But take the documents to the appointment with the assumption that you will trust them. If you do want to take the relationship to the next level, make your documents available to the adviser.

You are a business. Its “You Incorporated”. The adviser you are interviewing is going to be your personal Chief Financial Officer. In order to do her job, she needs information. You are the only one who can give her that information.

But the information is much more than what you have, spend and earn. The most important information an adviser should be concerned with is who you are. Working with an adviser who doesn't know (or care about) the answers to these three questions is like trying to drive from Los Angeles to New York without any gas in your tank.

What have your experiences been like? Does your adviser know what makes you tick?

This is a guest post by Neal Frankle. who found himself in a financially fragile situation at the age of 17. Both his parents passed away while he was still in high school, leaving behind a small insurance settlement. Neal sought out a financial adviser to help him invest his nest egg so that it would help put him through college. Instead, the adviser charted a self-serving course and was on the verge of burning through the money when Neal realized what happened and fired him just in time to avoid losing everything.

The experience had a deep impact on Neal and formed in him a lifelong desire to help people learn to make smart financial decisions. Today, with more than twenty-five years of experience in the financial services industry, Neal is an author and avid blogger. To learn more, visit www.wealthpilgrim.com

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