8 Important Questions to Ask Your Financial Advisor

8 Important Questions to Ask Your Financial Advisor

Nelson Smith |Aug 14, 2019

Make Sure You Are on the Same Page

20 years ago, working with a financial advisor was a necessity. You couldn’t access the stock market without these middlemen, who naturally charged big fees for the privilege.

Things are much different these days. Opening your own online brokerage account is easy, and diversified products called exchange traded funds (ETFs) offer investors access to the world’s top stocks. These ETFs charge tiny fees, meaning an investor keeps most of their dollars in their pocket, rather than having the fund company get rich.

Many investors — especially younger folks — tend to do this DYI route. They figure out their portfolio alone, using the internet for help with issues such as asset allocation, the differences between certain types of retirement accounts and minimizing taxation.

While there’s nothing wrong with seizing your own financial future, there are plenty of reasons why you should still work with an advisor. A competent financial advisor can help with everything from portfolio construction to estate issues. They can talk a client out of selling at precisely the wrong time, and their expertise can save you money and aggregation.

If you do decide to seek help from a professional, there are certain questions to ask your financial advisor. Asking these questions will help you understand who they are what they do, and how they can ultimately help you with your finances.

What Is a Financial Planner?

I promise, this question isn’t as crazy as it sounds. Why would you ask your financial planner what they are? Shouldn’t you know that going in?

It’s not quite that simple. There’s really no set definition of what a financial planner is. Yes, they all offer approximately the same services, but there’s often a big difference in services offered from advisor to advisor.

Some “financial planners” are nothing more than salesmen who are mostly concerned with selling expensive mutual funds or complicated insurance products. Others will take a more detailed look at your finances, getting a complete look at your financial picture. They will then help you build a portfolio of low-cost ETFs or help get your spending under control.

A full-service financial planner is typically the better choice. You want somebody who is going to have an intimate knowledge of your total financial picture.

What Kind of Financial Planner Are You?

There are essentially two types of financial planners: traditional planners and fee-only planners. The big difference is how they get paid.

A traditional planner will get paid on commission when they sell you financial products. This can either be through a trailer fee — which is an ongoing commission from a product like a mutual fund or life insurance — or through a flat fee when the client buys a product or gets referred to a different company for some other financial need. Some financial advisors will refer their clients to mortgage brokers or sell them banking products and collect an additional fee in the process.

The advantage to this type of advisor is the client isn’t stuck paying a bunch of fees out of pocket. It’s a frictionless process to get the planner paid, which should result in a win-win situation. The client gets the help they need, and the financial planner makes a living. Unfortunately, some planners are guilty of pushing unnecessary products that offer lucrative commissions. These products might not be in the client’s best interest.

A fee-only financial advisor, meanwhile, has no relationship with any financial services companies. These advisors are paid directly by the client either on a per hour or per job basis. A fee-only planner might give a client a total financial plan — including a spending plan, savings plan, investing plan, tax plan, and estate plan — for one fixed fee. The client would then come back for a new plan when the time comes to make changes.

One of the big advantages of a fee-only planner is that they have incentives to recommend the best financial products. They’re not motivated by commissions. Plus, since investors only have to consult a fee-only planner every few years, they generally end up being cheaper in the long-run compared to a full-service planner.

There are two disadvantages to using fee-only planners. A financial plan can easily cost a couple thousand dollars, which is a lot for younger people just starting their financial journey. And after the fee-only planner tells their clients what to do, the clients have to go and do it, whereas some might prefer to have the planner take care of everything.

What Does a Typical Portfolio Under Your Care Look Like?

This is an important question for a couple of reasons. You can see the fees embedded in the products recommended by your advisor and you’ll want to see whether they recommend a simple portfolio of a few ETFs, which is ideal, or a complex portfolio filled with individual stocks, dozens of ETFs, or other more exotic products.

There’s an old saying in finance: a portfolio is like a bar of soap; it’s biggest when it doesn’t get handled excessively. A good advisor should be smart enough to realize this.

Some financial planners will insist on making complex portfolios to try and eke out a little higher return on investment. These advisors are likely looking to position a client in a portfolio that will generate much higher fees. If your planner gets paid on commission and recommends a portfolio that will generate a lot of activity, this is not a good combination for your wallet.

How Do You Work with Clients?

One of the biggest complaints I hear about financial advisors is their customers never hear from them until it’s time to contribute more money to their retirement accounts. There’s never a courtesy call to tell the client about their investment performance or anything like that.

There’s a simple reason for this, at least from the perspective of the financial planner who works on commission. Your advisor isn’t making any money off you unless you’re buying a financial product.

Often, these advisors would love to spend more time with each client. They want to set up quarterly meetings to discuss portfolio performance and savings rates, but they simply don’t have the time. Or their bosses won’t let them, ordering all excess time to be spent on drumming up new business.

Ideally, you want a financial planner who will take 10 minutes every now and then to talk to their clients. But be wary: many will promise that level of service and then fail to deliver. It’s tough to get a personalized touch in an industry dominated by big banks, but some independent planners have realized staying in constant touch with their clients is a better long-term business plan.

How Much Experience Do You Have?

This question is a little tricky, because I firmly believe your advisor’s direct experience level might not matter that much.

Large financial planning firms have access to investing experts, tax pros, and lawyers that know the ins and outs of the estate planning process. If a rookie advisor doesn’t know the answer to a question, it can be easily obtained.

A newbie in the business will also have a supervisor look over any work that’s being done to make sure the client is in the best investments for their needs.

In terms of education and credentials, there are a few different levels of financial planning. You don’t need any sort of designation to offer financial planning services. Anybody reading this article could start up a financial planning business tomorrow. It might not be very successful, but there would be nothing stopping you.

The first level of accreditation is being licensed to sell the financial products offered by the planner’s company. Most bank-based financial planners will have licenses to sell mutual funds and life insurance. To get these licenses, your advisor had to pass a test that demonstrates they have at least a working knowledge of the products offered.

Some clients will insist on more experience. This is where the CFP designation comes in. To become a Certified Financial Planner, the planner must take special courses, pass a difficult test, and then make it through a two-year apprenticeship period, or a three-year period of working on their own.

There are close to 80,000 Certified Financial Planners in the United States, so finding one shouldn’t be difficult.

How Do You Measure a Successful Partnership?

Essentially, this question is designed to see what your advisor sees as an ideal outcome from your potential partnership. There really is no correct answer here; it all comes down to what your goals are and seeing if your advisor’s goals are similar.

For example, if you’re just looking for a little help with achieving better portfolio returns, then having an advisor say “I want to beat the returns of the overall stock market over a long-term period” would be completely acceptable. That’s why this person was hired.

But if you’re looking for something more, then that isn’t an acceptable answer. You’re going to want to work with a financial planner who offers a more complete range of services. An acceptable answer from that advisor might be “I want to see my clients accumulate enough capital to make all their dreams come true.”

As a client, you want to make sure your advisor is working toward the same thing you are. Some will be able to offer that, while others will struggle with it. It’s important to find someone who is best suited to your goals today, rather than spending years with an advisor who isn’t right for you.

When Will You Retire?

Especially for folks in their 20s or 30s, the relationship with a financial advisor could be something that lasts decades. You’ll want to make sure your advisor has the longevity to see your portfolio through that kind of long-term growth.

Working with a financial planner in their 50s or 60s might not be the best choice for a millennial who has just started taking finance seriously.

If your planner does retire or decides to try something different, you’ll likely get reassigned to a different person who works for the same company. This might not be a big deal. You’ll end up with a professional who understands your needs. But other times this might be a disaster, and you’ll end up with someone who isn’t a good fit. You’ll then be forced to find a new planner, which can take time.

Some of the best financial planners decide to go out on their own, usually after a few years of frustration under a commission-first sales model with a big company. These folks are usually well educated, extremely qualified and ambitious. But succession planning is often a big issue with these folks. If you work with an independent planner, keep in mind that you might be forced to find somebody new when they retire.

Are You a Fiduciary?

I saved the most important question for last.

First, let’s talk about what a fiduciary is. A fiduciary is someone who acts on behalf of someone else to manage investments. The fiduciary is required to act in the client’s best interest and can only profit from the relationship in specific ways that have been agreed upon by the two parties.

A big part of the fiduciary agreement between an advisor and a client is what’s called the suitability rule. This ensures the planner only presents the investor with investments that are suitable for their risk tolerance and expertise.

Because financial planning is loosely defined, there are many financial planners who do not have a fiduciary responsibility to their clients. Sometimes, financial planning is nothing more than a specific form on consulting. A client asks advice, the planner answers, and everyone’s happy. But there is no fiduciary responsibility there.

Someone with the CFP designation is a fiduciary. Someone who is a Registered Financial Advisor will likely be one, too, and so are most fee-only financial planners. Somebody who is only licensed to sell mutual funds out of an office at the bank might not be, even though financial planning might be part of their job description.

This is confusing for clients who don’t know the difference between someone who specializes in financial planning and someone who just sells investments. The former will likely do a great job with your overall financial picture. The latter won’t spend as much time on it, using financial planning to generate more commission.

The Bottom Line

Choosing the wrong financial planner could mean the difference between retiring wealthy and struggling during your golden years. It’s not a decision to be taken lightly.

Ultimately, it’s not something that can be easily defined. There’s no one right answer to the question. You have to spend the time talking to planners until you find the person that’s right for your specific needs. Take the time to do so and make a list of questions to ask your financial planner. Your future self will thank you.

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5 of the Best Auto Insurance Companies

Eric Bank | August 14, 2019

Protect Against Collisions and More If you drive a car in the United States, liability insurance must cover it. This type of policy pays for medical and property damage resulting from a vehicular accident. You can also purchase comprehensive and collision insurance to cover other costs. These additional coverages help protect the value of your car should it be damaged. If you are calculating how much it will cost to buy a car, you need to take into consideration the cost of insurance as well. In this article, we’ll review the basics of car insurance and the best auto insurance companies in America, including costs, pros and cons. This is a brief introduction to automobile coverage. Liability Coverage When an accident occurs, liability insurance covers you, household members and authorized drivers for the costs associated with property damage and bodily injury. It covers the cost to repair or replace property damage that you caused. [youmaylike] You are also covered if you cause the bodily harm or death to someone else while you are driving the car. This includes medical expenses, loss of income and specified legal defense costs. Collision Insurance If you are involved in a collision, this type of insurance will help pay for repairing or replacing your vehicle. If the collision is your fault, the coverage may extend to other damaged vehicles involved in the accident. States do not mandate that you buy collision insurance, but your lender or car dealer will if you finance or lease the car. Policies offer a range of deductibles, which is how much you’ll have to pay for repairs before the insurance kicks in. Larger deductibles lower the policy premiums but expose you to more out-of-pocket expenses if a collision occurs. Comprehensive Insurance Comprehensive insurance covers damage to your car that occurs for reasons other than a collision, including theft, fire, vandalism, weather and natural disasters. This coverage is often required if you finance your automobile. You can add riders to this insurance to provide coverage of additional costs, including auto towing, glass repair, daily rental while your car is in the shop and emergency roadside service. As with collision insurance, you can set the deductible on your comprehensive insurance policy to cut your premium costs. Gap Insurance If your car is severely damaged in an accident or other incident, you might find that your comprehensive and collision damage won’t provide enough coverage to pay off the amount you owe on the vehicle. Many policies pay only the fair market value of a totaled car, which might be only 80% of the amount you owe. You can buy additional insurance to plug this gap and ensure you can pay off the car loan in full if the vehicle is destroyed or stolen. Normally, car leases require you to buy gap insurance. If you pay cash or pay off your loan, you can save money by avoiding or dropping gap insurance when no longer needed. Top Five Auto Insurers These five insurers all offer full coverage policies and many additional services. Amica Amica is a superstar among car insurers, winning accolades from Consumer Reports and J.D. Powers. It’s known for handling the claims process smoothly. The average annual cost for full coverage: is $1,360. Pros You can have your car repaired at any body shop, without restrictions. Offers a premium package which, for an additional cost, provides full glass coverage, rental coverage, good driving rewards and identity fraud monitoring. Superior financial stability rating from A.M. Best. Cons Missing some discounts, such as military, low-mileage and prepay discounts. Must speak on the phone to get a quote. Sparse website when it comes to customer education. State Farm State Farm is the country’s largest multi-line insurance company. It excels in customer service and regularly garners high marks from customers. The average annual cost for full coverage: is $1,337. Pros Superior financial stability rating from A.M. Best. Excellent online quote tool, getting customers a quote in as little as five minutes. Easy claim handling and top service from its more than 18,000 agents and its easy-to-use mobile app. Cons Doesn’t offer coverage for new car replacements or uninsured motorists. Missing prepayment and automatic payment discounts. The Hartford While only 11th in size, The Hartford is big when it comes to policy options. It offers rates based on your actual driving as well as full replacement of new cars when destroyed shortly after purchase. Average annual cost for full coverage: N/A. Pros Solid benefits, including superior roadside assistance and towing programs. High marks from customers for their purchase experiences. One of the few insurers with mechanical breakdown coverage for out-of-warranty repairs. Cons Mediocre service interaction according to J.D. Power surveys. Sparse online learning materials. Geico Geico is the second-largest U.S. car insurer. It is a favorite among tech-savvy geeks who appreciate the insurer’s mobile app and excellent online service. The average annual cost for full coverage: is $1,627. Pros Geico offers plenty of ways to save, such as multi-vehicle, driving history and vehicle safety equipment discounts. Special savings for active and retired military members and federal employees. Full-featured mobile app for getting quotes, buying insurance, managing your policy, submitting claims, summoning roadside assistance and making payments. Cons Human help may be in short supply, as just about everything is handled online. No gap insurance is offered. USAA No insurer matches USAA for service to military members. Unfortunately, it's only available to active service members, their families and retired veterans. Average annual cost for full coverage: $896. Pros Superior financial stability rating from A.M. Best. Top-ranked purchase experience score from J.D. Power. Cons Missing gap coverage. Doesn’t offer interior vehicle coverage or new car replacement coverage. Limited availability. The Right One for You Competition in the insurance industry helps drive down prices and prompts insurers to offer money-saving features. For example, your carrier might reward you for a safe driving record and for having a long-term relationship with the insurer. The right insurer for you is highly rated for service, offers the exact coverage you want and does so at an unbeatable price. You should always gather multiple quotes before selecting an insurer, and make sure you get credit for all applicable discounts.

How to Apply for a Business Credit Card

Myles Leva | August 14, 2019

Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.

Everything You Need to Know About Filing Your Own Taxes

Katie Macomb | August 14, 2019

It's Not Fun, but It Has to be Done Benjamin Franklin wrote a 1789 letter that states, “But in this world nothing can be said to be certain, except death and taxes.” Even at the United States’ early beginnings, federal taxes were a necessary evil to fund various public projects and administrative costs. Today, federal taxes serve much of the same purpose. While virtually no one likes to prepare and file their taxes, it is a necessity if you want to avoid fines and further hassle. It is no secret that preparing and filing your taxes is notoriously complicated. Many people lament that it should not be so difficult to pay the government. However, some of the complications allow people to save money if they discover specific tax benefits. Knowing how to file your own taxes may be a good option if your tax situation is relatively straightforward, or if you are willing to learn the process. Why Do You Need to File Your Taxes Every Year? The short answer is that federal law requires that most individuals file taxes annually. Income taxes are assessed every year based on your income earned during that period. You then pay a percentage of that income to the government, less any deductions, adjustments, or credits that you qualify to receive. If you do not file (and pay) your taxes, then you may be assessed penalties and interest. The Internal Revenue Service (IRS) can even go as far as garnishing your wages and repossessing your property if you do not file and pay as required. The Benefits of Filing Your Own Taxes If you are one of the 43% of Americans that are doing your own taxes, you are certainly not alone. Roughly 53 million people prepared and filed their own taxes in 2018. There are many benefits to filing your own taxes, including: Saving money: Hiring a tax professional is expensive, and many people can prepare and file their returns on their own, completely free of charge. Control: Some people like knowing the exact information that is included in their return and being able to control the data, and for some, knowing precisely how the numbers work out, is comforting. Gain helpful information: When you prepare your taxes, you can see what items saved you money this year or which issues you should address so you can save money next year. While filing your own taxes is complicated, it can be beneficial under the right circumstances. There are several programs online that walk you through the process to help ensure you are taking advantage of all of your available deductions and credits. The Drawbacks of Filing Your Own Taxes In addition to the benefits, there are also some disadvantages to filing your own taxes. These include: Time and effort: Preparing and filing your taxes takes time and work You have to sift through financial information and deal with concepts that you may not understand well. The process can be frustrating and take a considerable amount of time. Error risk: If you do not completely understand how your taxes work, you run the risk of making a mistake because of misconceptions. If that happens, it could lead to underpayment and audits down the road. Questions: Even if you use a tax preparation software, you may still have questions that will remain unanswered unless you do significant research or reach out to a tax professional. For some people, the risk of having a substantial error that triggers the IRS’s attention is enough to scare them away from preparing their own taxes. Preparing for Filing Your Taxes When you begin work on your taxes, you should have information gathered throughout the year. Some of the most common items that you will need include: Social Security numbers for you, your spouse, and any dependents Information about wages, such as W2s or 1099s Investment income information Documents that represent any other source of income Information regarding adjustments to income, such as student loan interest paid, IRA contributions, and health savings account contributions, just to name a few Information regarding potential credits, including, for example, child care expenses, education expenses, or retirement savings contributions Data about any tax payments that you may have made throughout the year Keeping good records will help make tax preparation easier at the beginning of the year. [youmaylike] The Basics About What You Can Claim When Filing You must pay income taxes on all your income earned throughout the year. However, that income is reduced by a few things. The further you can reduce your taxable income, the less you tax you will pay. There are three general categories of tax reduction methods: Standard or Itemized Deductions Everyone can claim either the standard or itemized deductions. Standard deductions are a set amount that is based on your filing status. Itemized deductions are based on actual expenses that you incurred throughout the year. You can choose to use the higher deduction. The higher the deduction, the less tax you will have to pay on your income because your income decreases on paper. Itemized deductions include things like medical expenses, state and local tax payments, and home mortgage interest deductions. Itemized deductions will only decrease your income by a certain percentage, or up to a specific point. Adjustments Some adjustments to your income may also be available. These include things like paying student loan interest or alimony. Adjustments are more valuable compared to deductions because they decrease your income dollar for dollar. Credits A credit decreases your taxable income as well. Some credits are refundable while others are not. For example, you get a child tax credit simply for having children that qualify for that credit, but that credit will not be paid out to you if you do not have any tax obligations. On the other hand, the Earned Income Credit, which is available for low-income filers, will be refunded to you even if you do not owe any taxes. There are a wide variety of deductions and credits available. Take a look at the federal forms and related schedules to determine whether you might qualify for any of these. How to File Your Own Taxes If You Live Overseas If you earned income in the United States as a U.S. citizen or resident alien, you likely need to pay taxes on that income. This is true even if you live overseas. You can still choose to e-file or mail your tax return to the IRS once you have it prepared, just as if you physically lived in the United States. In some cases, you will be taxed on the income that you earned throughout the world. However, you may be able to deduct a portion or all of the revenue that was not made in the United States in some circumstances. Filing Online The IRS offers an online filing option that is free for individuals that have an adjusted gross income below a specific threshold. Generally, your income must be below $66,000 to qualify for this service. You can also file online by using a commercial tax preparation software. Examples of this type of software include: H&R Block TurboTax TaxCut TaxSlayer There are many programs available that will file your taxes for you, often for a fee. Knowing how to file your own taxes can be a great way to save money, but it can be tricky as well. If you want to file your taxes yourself, be sure to read the form instructions thoroughly and get familiar with various tax saving opportunities before you begin preparing your return.