What to ask before you hire

Before you hand someone your financial information or pay them to manage money, ask how they are paid, what licenses they hold, and whether they are legally required to put your interests first. These three questions separate advisors who have a financial incentive to steer you toward expensive products from those who don't. Write down their answers and ask for them in writing if the conversation happens by phone.

Start with: "Are you a fiduciary?" A fiduciary is legally required to act in your best interest, even when it costs them money. Not all financial advisors are fiduciaries all the time — some are only when they manage retirement accounts, and some are never. If they hesitate or say "it depends," that's a red flag. A fiduciary will say yes clearly.

Then ask: "How are you paid?" The answer matters more than the label. If they earn a commission on products they sell you, they have an incentive to recommend expensive or unnecessary things. If they charge a flat fee or an hourly rate, that incentive disappears. Some advisors use a hybrid model — they charge a fee for advice but also earn commissions. Ask them to explain exactly which products pay them commission and how much.

Key Takeaways

  • Ask whether they are a fiduciary at all times, only for retirement accounts, or never — this determines whether they are legally required to put your interests first.
  • Understand exactly how they are paid: hourly, flat fee, percentage of assets under management, or commission on products they sell you.
  • Request their Form ADV Part 2 (for registered investment advisors) or ask what licenses they hold and whether they have a disciplinary history.
  • Ask what happens to your money if the advisor goes out of business or you want to leave — your assets should be held by a separate custodian, not by the advisor themselves.
  • Clarify what services are included in their fee and what costs extra, so you know the true price before you commit.

Questions about their credentials and history

Ask what licenses and certifications they hold. A Certified Financial Planner (CFP) has passed exams and agreed to a code of ethics. A Registered Investment Advisor (RIA) is registered with the SEC or your state and must file Form ADV, which is public. A stockbroker or insurance agent may have fewer requirements. None of these titles may provide competence, but they do mean someone checked their background and they have ongoing obligations.

Request their Form ADV Part 2 if they are an RIA — it lists their fees, services, conflicts of interest, and any disciplinary history. You can also search the SEC's Investment Adviser Public Disclosure database or your state's securities regulator to see if complaints have been filed. Ask directly: "Have you ever been disciplined by a regulator, sued by a client, or had a complaint filed against you?" Listen to how they answer, not just whether they say yes or no.

Ask how long they have been in business and whether they have changed firms. Frequent job changes can mean instability, but one or two moves are normal. If they have been at the same firm for 10 years, that suggests stability. If they have moved five times in eight years, ask why.

Questions about how they will manage your money

Ask what investment strategy they use and why. A good answer explains their philosophy in plain language — for example, "I build diversified portfolios using low-cost index funds because research shows that beats most active managers over time." A bad answer is vague ("We use a balanced approach") or relies on jargon without explanation.

Ask what your money will be invested in and whether they will recommend their own products or products from other companies. If they manage a mutual fund and recommend it to clients, that's a conflict of interest — they earn more when the fund grows. Ask whether they recommend the same investments to all clients or customize based on your situation. Ask what the total cost of investing will be, including their fee, fund expenses, and trading costs.

Ask how often they will review your portfolio and how they will communicate with you. Some advisors meet quarterly, some annually. Some send detailed reports, some send one-page summaries. Ask what happens if the market drops 20 percent — will they call you, or will you have to reach out? Understanding their communication style now prevents frustration later.

Questions about who holds your money

Ask who will hold your actual money — your advisor or a separate custodian. Your money should be held by a custodian like Fidelity, Schwab, or your bank, not by the advisor themselves. This protects you if the advisor goes out of business or commits fraud. Ask whether the custodian is SIPC-insured, which covers up to $500,000 per account if the custodian fails.

Ask what happens if you want to move your money to another advisor. The custodian should transfer it directly to the new advisor without delay. If your advisor says they need to liquidate everything first or charges a fee to transfer, that's a sign they are making it hard for you to leave — a bad sign.

Questions about fees and what is included

Ask for a written breakdown of all costs. This should include their advisory fee (hourly, flat, or percentage), fund expense ratios, trading costs, and any other charges. Ask whether the fee is negotiable, especially if you have a large account. Ask whether there are penalties for early withdrawal or account closure.

Ask what services are included in the fee and what costs extra. Some advisors include tax planning and retirement planning in their base fee. Others charge separately for those services. Some charge extra if you want to meet more than twice a year. Get this in writing before you sign anything.

Ask about the minimum account size. Many advisors require $100,000 or $250,000 to start. Some have no minimum. If you have less than their minimum, ask whether they will make an exception or refer you to someone who will work with smaller accounts.

Questions about conflicts of interest

Ask whether they sell insurance products, real estate, or other investments outside of their main advisory business. If they do, ask how much of their income comes from those sales. An advisor who earns 80 percent of their income from insurance commissions is not primarily an investment advisor, even if that is what they call themselves.

Ask whether they have any business relationships with companies they recommend. For example, if they recommend a particular custodian, do they earn a referral fee? If they recommend a financial product, do they own stock in the company that makes it? These relationships are not always disqualifying, but you should know about them.

Ask whether they have ever been involved in a lawsuit, regulatory action, or bankruptcy. You can verify this through FINRA BrokerCheck (for brokers and some advisors) or your state securities regulator, but asking directly gives you a chance to hear their side of the story.

Questions about your specific situation

Ask how they would handle your specific circumstances — whether you own a business, have a pension, are recently divorced, or are nearing retirement. A good advisor will ask you detailed questions about your goals, risk tolerance, time horizon, and existing assets before recommending anything. If they jump to recommendations without asking questions, they are not tailoring advice to your situation.

Ask how they would coordinate with your other advisors — your accountant, attorney, or insurance agent. Good financial planning requires communication across these areas. An advisor who works in isolation is missing pieces of your financial picture.

Red flags to listen for

Be skeptical if an advisor promises specific returns ("I can get you 10 percent a year"), guarantees you will not lose money, or says they have a secret strategy that beats the market. No one can promise returns, and anyone who does is either lying or breaking the law.

Be skeptical if they pressure you to decide quickly, say you need to act before the market moves, or claim this is a limited-time opportunity. Good financial planning takes time. Pressure is a sales tactic, not a sign of good advice.

Be skeptical if they are unwilling to put their answers in writing, avoid your questions, or become defensive when you ask about fees or conflicts of interest. You are hiring them to manage your money — you have the right to full transparency.

Frequently Asked Questions

What is the difference between a financial advisor and a financial planner?

The terms are often used interchangeably, but "financial planner" usually means someone who looks at your whole financial picture — income, expenses, debt, insurance, retirement, taxes, and investments. A "financial advisor" might focus only on investments. Ask what services they provide to know what you are getting.

Should I hire an advisor who charges a percentage of assets under management?

A percentage fee (typically 0.5 to 1.5 percent per year) aligns the advisor's interests with yours — they earn more when your money grows. However, this model works best for larger accounts. For smaller accounts, hourly or flat fees may be cheaper. Compare the total cost under each model before deciding.

Can I use a robo-advisor instead of a human advisor?

Robo-advisors are automated platforms that build and manage portfolios based on your answers to a questionnaire. They are usually cheaper than human advisors and work well for straightforward situations. However, they cannot provide personalized advice for complex situations like business ownership, inheritance, or major life changes. Consider your situation when deciding.

What should I do if an advisor refuses to answer my questions?

Do not hire them. A trustworthy advisor will answer every question clearly and provide documentation. If they avoid questions, become defensive, or say you are asking too much, that is a sign to keep looking.

How do I know if an advisor is actually a fiduciary?

Ask them directly and ask for the answer in writing. You can also check their Form ADV Part 2 (for RIAs) or ask whether they are registered with the SEC or your state. Some advisors are fiduciaries only for certain accounts or services, so get specific language about when the fiduciary duty applies.