5 Key Questions to Ask Your Financial Advisor: A Deep Dive into Your Financial Future

Your financial plan is not merely a spreadsheet detailing your investments. It’s a dynamic roadmap that outlines the strategy for achieving your long-term goals. It incorporates your family’s values, risk tolerance, and liquidity needs. As the landscape of your life and the global economy changes, your financial strategy will need to adapt accordingly.

A financial advisor plays a crucial role in this journey, helping you to devise, tweak, and execute a personalized investment plan. They serve as a stable presence during volatile markets, guiding you to resist emotional decisions that could potentially jeopardize your portfolio’s long-term growth.

In your interactions with your financial advisor, there are five key questions you should explore to ensure you’re on the right track.

1. Am I on track to meet all my financial goals?

In the early meetings, your advisor should examine your current financial situation and discuss your aspirations for the future – 10, 20, or even 30 years ahead. You may have varying objectives, including short, medium, or long-term goals like buying a house, funding your children’s education, or planning your retirement.

Terri Lyders, an advanced planner with Fidelity, acknowledges, “Many of us have multiple goals that are competing for our financial resources.” An advisor’s role is to help you prioritize these goals and devise suitable strategies to accomplish them. They assist in articulating your ambitions, like retirement lifestyle, education expenses, etc., and mapping out an asset allocation and savings plan compatible with your risk tolerance and cash flow requirements.

2. Am I prepared to handle unexpected events?

Life can throw unexpected events your way, such as volatile markets, job loss, or illnesses. These events can derail your financial plan if not prepared for. Here, an advisor can assist in creating contingency plans for scenarios that pose a threat to your family’s financial stability.

The advisor can help you ascertain the optimum cash reserve for emergencies and assess if you have the appropriate amount of insurance coverage. They can guide you through volatile markets, providing assurance, and encouraging you to stay invested.

3. Is my investment strategy in line with my long-term goals and the current market environment?

It’s crucial to align your investment strategy with your long-term goals and the prevailing market environment. During volatile markets, the temptation to adopt an overly conservative approach or even convert your investments to cash to avoid losses can be strong.

However, such decisions can be counterproductive in the long run, as an overly conservative portfolio might yield lower returns and be susceptible to inflation. Your advisor can help craft a diversified investment mix suitable for your circumstances, allowing for necessary long-term growth. As the market trends change, your advisor can suggest rebalancing your portfolio or realizing some gains.

4. Am I maximizing tax savings and other tax-smart strategies?

Taxes can significantly influence the long-term performance of your portfolio. Employing strategies to minimize investment taxes can be complex. An advisor can guide you to place less tax-efficient assets in tax-deferred accounts, identify assets that generate minimum taxable income for taxable brokerage accounts, and develop a withdrawal strategy to reduce taxes from your tax-deferred account distributions.

During volatile markets, your advisor may suggest tax-loss harvesting techniques, which use realized capital losses to offset capital gains and potentially a portion of ordinary income. They may also recommend strategies to minimize capital gains for assets that have significantly increased in value.

5. What will my legacy look like?

Legacy planning is an integral part of your financial goals. It’s not just about your protection, but also about providing for your loved ones and enabling them to achieve their financial aspirations. An advisor can guide you on transferring assets, considering your comprehensive financial situation and the prevailing tax laws.

Moreover, your advisor can assist in kick-starting the process of assembling an estate plan. Terri Lyders suggests having a high-level discussion about the estate-planning process and your desires before drafting any legal documents with an attorney. These discussions can cover decisions about property inheritance, appointing a guardian for minor children, or assigning powers of attorney.

If your estate’s complexity requires, your advisor might recommend consulting an estate-planning specialist to create a legacy plan, ensuring your assets are passed on in an orderly and tax-efficient manner.

In Conclusion: Trust and Regular Engagement are Crucial

Life changes, and so must your financial plan. Regular meetings with your advisor, especially after a significant life change, can ensure your financial strategy stays current and reflects your family’s evolving needs and aspirations. Trust and engagement are key to making the most of this relationship and ensuring a secure financial future.