That's a good question! (No pun intended) please see this brightscope guide for more:
In my opinion the most important question to ask a "financial planner" is: "Are you an indpendant advisor/planner?" Many financial planners are really sales people that put together simplistic plans with the intent on using it to sell product. I'm not saying there aren't good planners at brokerage firms and insurance companies, but I believe financial plans should be conflict free to do a quality job of planning. Planners should be paid for their work, but not at the detriment of the client.
Great question, Arianna. And you have gotten some very good answers already. Keep looking and digging for more! It is you as a consumer that make any industry great. And questions are your tools for finding out where to buy the best advice.
As in any purchasing decision you make, consider the "features and benefits" of the people you buy from. When it comes to investing, the investment success of the advisors you interview is key. Investment performance is one aspect of this (BOTH rate of return AND volatility/standard deviation).
Investment approach or philosophy is also very important. If you don't understand how they are managing their clients' money (or they can't explain it clearly enough), I would be very careful. There is a strong benefit to you in understanding what is going on (and how you can measure and quantify your money's performance over time compared to the expectations at the outset.)
Cost is always an issue to look at. And one that is often complicated and difficult to understand. A good advisor will take the time to help you fully understand all of your fees. Know right now that the costs are likely to be larger than you think. This is why you dig into this one so hard. And be careful to go over all of the costs, not just the advisor's fee. When buying a car, we don't ask just about the salesman's commission. But we want to know the total cost.
I believe the most important question you should ask a financial planner is if they act as a fiduciary on your behalf at all times. For more on this idea, click this link: http://bucks.blogs.nytimes.com/2012/04/02/a-few-things-to-ask-your-financial-adviser/
To be clear, I'm not saying fiduciaries are automatically trustworthy and non-fiduciaries are not, but this will at least give you a better understanding of your relationship and the perspective from which you'll be receiving financial advice.
It will also help you understand whether or not the planner is compensated by other parties or organizations that may influence the advice you receive.
Personally, I operate as a fiduciary on behalf of my clients at all times, but I know several very trustworthy advisors and planners that work in a brokerage environment which means they don't serve as a fiduciary to their clients, at least not 100% of the time.
Good luck, and I encourage you to ask as many questions as it takes for you to understand and reach a level of comfort with whichever planner you hire to work with you.
Hi Arianna First of all congratulations in asking this question. This is the first step in developing a financial plan. I believe the most important question you can ask is, Is the advisor willing to act as a fiduciary advisor to you. This should be in writing and it will reduce or eliminate any conflicts of nterest in your relationship. Good luck you have started on the right path.
I agree with many of the listed answers, but in my opinion, there are two critical questions that must be answered.
Number 1- what does your (the advisor) compensation look like? A lot can be said about an advisor's recommendations by HOW he or she is paid. I believe a fee-only advisor's advice is unbiased whereas a commision advisor's advice may be linked to a sale. Number 2- what factors would influnce the advisor to SELL. Most anyone can tell you what to BUY, yet very few utilizes strategies for selling. Again, this concept may be linked to the compensation of the advisor.
As a consumer, you can never ask enough questions, so continue the education process until you're satisfied!
Arianna: There is one additional question that I would ask a prospective advisor/planner. It is a simple question, but one not often asked in my experience: "Does the advisor or his/her family personally own the same investments that are being recommended to clients?" In my opinion, there is a lot to be said about advisors that "eat their own cooking". In addition, we have had recent, high profile reports of "advisors" (i.e. Goldman) that placed their own money in investments that effectively bet against the investment programs that they were actively marketing to clients. Owning the same investments does not guarantee success or performance. However, it does increase the odds that your and your advisor's interests are aligned. Good job for doing your homework. Good luck on your search.
Arianna - Please take a look at a financial guide I have posted to the Brightscope site, which includes ten questions you should ask before choosing an advisor. The list is adapted from the CFP Board of Standards and can be viewed here: http://www.brightscope.com/financial-planning/advice/guide/1908/10-Questions-To-Ask-Before-Choosing-A-Financial-Advisor/
Best of luck in your search, and do not hesitate to reach out if you have any questions.
The National Association of Personal Financial Advisors, NAPFA, has published a Field Guide to help you with this process. From their website:
The Pursuit of a Financial Advisor Field Guide is your ultimate resource for finding a financial advisor who will work in your best interests. The Field Guide features information on preparing for your search, the questions to ask, evaluating your advisor, and much more. We are pleased to provide The Field Guide as an Adobe PDF file that you can download for free.