How the Adviser Is Paid
- Determine if the adviser is paid by the hour, by commission or as a percentage of your investment assets. Ask the adviser if she is part of a larger company and how that influences her investment recommendations. If your adviser is encouraged to recommend certain investments because of her affiliation, it is important for you to know how those particular investments have performed in the past. According to "SmartMoney" magazine, only 6 percent of investment advisers are completely independent.
Whether the Adviser Is a Fiduciary
- According to "SmartMoney," an adviser is a fiduciary if he charges fees; he is not if he is on commission or on salary with a securities firm. A fiduciary must, by law, put the client's interests first, ahead of his own. Otherwise the adviser must only determine whether an investment is suitable for a client, a much lower standard. Advisers who are paid through a combination of methods might switch back and forth from being a fiduciary to not being one depending on the investment product in discussion.
How the Adviser Plans to Adjust to Market Downturns
- Your adviser should keep you apprised of your investment performance if you request it. She should also answer any questions about the state of the economy and market. Ask your adviser how she's dealt with past market downturns and what she's learned from her experience. Financial publisher Bob Veres told "Kiplinger" advisers should not make wholesale changes during a downturn but should take the opportunity to increase the equity exposure in a portfolio.
How Your Investments Have Performed
- Ask how your investments have performed compared to similar funds. A significantly worse performance might indicate bad decisions, whereas a significantly better performance might indicate good luck, or that the adviser made risky decisions that happened to pan out. Ask for a detailed explanation. Veres recommends comparing your overall portfolio performance to the market as a whole; an adviser should ensure that a client's portfolio is sufficiently diversified so that it will decline less than the market's overall dip.
How Your Investments Match Your Goals and Time Frame
- Advisers should invest according to your overall financial plan. Short-term investments should be low risk; money earmarked for emergencies should be in a safe investment that you can turn to cash quickly. Longer-term investments might include higher-risk vehicles. Ask your adviser how liquid your assets are and how the risk of each fits with your time frame.