One Simple Test For Your Financial Advisor

by | Jul 30, 2019

(This article is reposted with the permission of the author. It was originally published here Boomer & Echo.)

I doubt very much you’re asking your financial advisor enough questions, and are worse off because of it. I think I’ve got a handle on why – let me see if any of this rings a bell:

You don’t have enough time: It’s tough to commit time to an appointment when there are so many other things crying out for your attention, let alone committing to another appointment if you don’t feel right about the first one. You’re also deeply polite and don’t want to take up too much of the advisor’s time.

You don’t have enough confidence: Heck, this is why you’ve got an advisor in the first place, because that person across the desk from you has more experience and is probably smarter than you, right? If you ask questions, they’re going to think you’re an idiot.

You aren’t rude enough: Asking a financial advisor why he’s recommending a particular fund or portfolio feels kind of aggressive. Pressing him for answers to your actual questions until you get them isn’t the way you were raised.

You don’t know enough: How will you evaluate the truth or accuracy of what you’re told if the whole reason you’re asking questions is because you don’t know the answers?

Am I right? At least in part? It’s really, really difficult to head into a meeting with a financial salesperson, knowing that you don’t know very much about investing, knowing that what happens to your savings is important, knowing that time is limited, and feeling as though your only two options are to ask questions about things you don’t understand until you understand them or to nod politely and buy whatever you’re sold.

That person across the desk from you might be the perfect financial advisor for you, but you can’t know that until you start asking questions, and I’ll warn you: a terrible advisor might sound an awful lot like a good advisor to someone too intimidated to ask.

Over the years as both a financial advisor at the bank and now as an advice-only planner, I’ve devised a very simple test to separate the wheat from the chaff: The best way to tell the difference between a good financial advisor and a bad financial advisor is to literally test their patience by scrutinizing fund documents right there in front of them while they wait.

You are paying – indirectly, often, but still paying – for this advice. Bad advisors forget that all the time, and start believing that you’re paying for their expertise rather than their assistance. If you get any sense that you’re wasting their time with your careful questions and document scrutiny, you’re getting a pretty good signal that you’re just a money delivery system and should probably run to your nearest T2033

So this is what I want you to do:

1. Ask about any term that you don’t understand: this includes MER, risk premium, value, forward P/E ratio, trailing returns, interest-rate risk, Andex chart…anything. Bring the conversation to a screeching halt anytime you hear something you don’t understand.

2. Ask to see the Fund Fact Sheet for every single investment you already own and every single investment that’s being recommended for you. Actually read each one of them, right there in the office, spread out beside each other. Look at the Management Expense Ratio and Total Expense Ratio, and figure out how much you’ll pay annually for the amount of money you have (or will have) invested. Look at the top ten holdings, the asset allocation, and the management style. Ask any question that occurs to you.

3. Zero in on the performance in the last ten years. If there isn’t a benchmark listed on the Fund Fact documents, ask your advisor to show you how the funds performed compared to other funds with similar holdings or strategies on

4. Ask what job each fund is meant to do in your total investment portfolio and why each one, in particular, is there instead of any number of other funds that could be in its place.

I can’t promise that this one set of questions will result in an immediately deeper investment knowledge or a magically better portfolio, but I dearly hope that it will prompt you to start asking your own questions, to evaluate the quality of the advisor by their willingness to have open dialogue, to grow in confidence until you get answers (or research your own), and to commit to an investment strategy, fund, or portfolio with your eyes open and your critical thinking skills engaged.

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