How to prepare: what an advisor will ask you

What an advisor will ask you: How to prepare

When you first meet with a financial advisor, the advisor will want to get to know you. Not just the “financial you” but also the personal you, because that affects how your finances should be managed. So by all means bring the facts and figures of your financial information with you, then relax and settle in to talk a little about yourself. After all, you’re embarking on a relationship that should last for many years.

From an advisor’s point of view, the questions fall under a few general categories, although there will be some overlap: financial circumstances including personal responsibilities, financial and retirement goals, risk tolerance and service expectations.

What are your financial circumstances?

This question is more likely to be asked as a series of questions. Simply put, your advisor may first ask what you own and what you owe. You may own a house, a cottage, a car and a business, but don’t forget your RRSP, TFSAs, an RESP for your children, perhaps a whole life policy, and any other investments or property. Then think about what you owe: your mortgage or line of credit, a car loan and any balances you are carrying on a credit card.

The next question will likely be about your income and expenses. Income is your salary or what you draw from your business, income from rental properties or investments and any other regular payments you receive, such as disability, support or alimony payments. How secure is this income? Could a downturn in the economy or competitive changes in your industry affect your income?

Now list your expenses – utilities, mortgage, car payments and groceries but also lifestyle expenses such as travel, dining out and entertainment. Dividing up your expenses into wants and needs is always useful as a way of outlining what is important to you. Boat maintenance or golf club memberships are luxuries to some, necessities to others.

Your advisor may also ask about any personal responsibilities – perhaps a disabled child or relative or elderly parents. Your plan will have to take these responsibilities into account. However, your advisor may also ask whether you expect to come into any inheritances, as this can obviously affect your planning as well.

What kind of retirement would you like to have?

The answer to this question sets the goals for your retirement plan. Retirements are not all alike. Nirvana for some may be nightmare for others. So what would you like to do when you retire? You could live in your paid-off home and travel to Florida for a month or two each winter. You could sell your home and live in Florida half the year. You could sell the home, buy a condo and travel frequently. Or you could move lock, stock and barrel to southern Spain. And there are many other options: a part-time job, a small business, living with family, and the list continues.

Your financial advisor will have several follow-up questions based on your current place in life. Do you want to take on more financial responsibilities before retirement, such as pay for a child’s university education, or pay off your responsibilities as soon as possible so that you can retire? Your advisor will take the financial circumstances you have already described and try to determine whether you will need to ramp up your savings, alter your investments or reduce your responsibilities in order to have the retirement you envision within the timeline you are setting.

Can you put up with financial risk?

Again, your financial advisor is likely to ask a series of questions aimed at uncovering your risk tolerance. You saying “I can tolerate a lot of risk” will not end the discussion. There’s a lot more to it. For example, your advisor will probably ask how much you have invested up to now, and what you have invested in. This will help reveal your level of experience with investing. Typically, experienced investors understand more complex instruments and may (not will, necessarily) have more risk tolerance.

Often, risk tolerance is also affected by your timeline – which is why your advisor will ask when you wish to retire. The sooner you stop working and need access to your money, the less resistant you are to market downturns. Whether you already depend on your investments for your personal cash flow is also a factor. If you need some of your investment proceeds to meet your current expenses, you will not want to take on much risk.

There is another factor that your advisor will probe: your personal makeup. Do you lose sleep, suffer symptoms of stress, or become emotional when your investments lose value, even temporarily? Your advisor will ask this question, because some people cannot tolerate downturns and need much more security than others, regardless of their other financial circumstances.

Service expectations

Just as you should be asking questions about what service your financial advisor provides, your advisor should ask about your preferences and expectations of that service. For example, an advisor needs your input to create and maintain a financial plan. The question “How can I reach you when I need to speak with you?” is a good one. The annual (or more frequent) review is extremely important, so the advisor may ask “I will be in touch at least once or twice a year to review your portfolio, but would you like me to contact you more often with updates?”

Finally, the advisor will seek your reaction to suggestions put forward in your meeting. “Do you have questions about the investment approach I am recommending, or about any of the individual investments?”

And finally, you should expect to be asked whether you understand the fees you will be paying. The explanation of fees should be clear to you, and you should ask questions – on the spot or later if something else occurs to you – if you do not understand. It is your money and you have the right and obligation to know what you are spending, what you are saving and what you are investing in.

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How to prepare: what an advisor will ask you

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