Let Me Clarify
PERSONAL Finances are Personal

I wanted to expand on a recent piece that mentioned the importance of an advisor gathering the necessary information before being able to make appropriate recommendations. Although investments (as an example) are products, keep in mind that providing financial advice is a service. While it may take some time, in order for your advisor to do their job well and provide the best service, there are a variety of questions that he or she should be asking.

Let me clarify.

Did you know, as advisors, we are legally required to gather certain information before we can make recommendations? In addition to these legally required questions, the more information you can provide to your advisor, the more appropriate the recommendations will be to your specific situation. Sometimes less is more, but that’s not the case when it comes to making financial decisions.

If we sit down and dive pretty deep into your situation, it is not to interrogate you. Rather, it’s to ensure that we’ve gathered all the necessary information to determine how that decision can impact the rest of your financial life. As previously mentioned, a financial plan is one big puzzle and our job is to make sure it fits together nicely, instead of simply jamming pieces (recommendations) into it; especially when they don’t fit.

With that in mind, let’s walk through some of the questions that your advisor should be asking you when working together.

Can you tell me about your family? It’s important to know this situation at the beginning to be aware of any additional sources of income/savings in the family, potential need for funding a child’s education, being aware of any prior marriages that might affect benefits and estate planning, etc.

Can you tell me about your income sources? There is a lot that can depend on this information. Income can affect the types of accounts/contributions you’re eligible for, the necessity for insurance if there is only one main source of income in the household, income phaseouts for certain tax benefits, and planning opportunities that depend on the timing and type of income that you receive.

What is your overall cash flow situation like? Cash flow is the foundation of all financial planning. It affects everything from your ability to save, determining an appropriate emergency fund amount, estimating your expenses in retirement and choosing the right health insurance.

What other savings or investments do you have? A lot of times, this question can seem like the advisor is trying to convince you to rollover more assets to them. The intention is really so that your advisor is aware of your other assets to be sure that one hand is talking to the other, and that the recommendations he or she makes does not negatively impact your other assets.

Do you have an estate plan? This may seem like an unusual question to be asked by your advisor, but estate planning plays a major role in your finances. While you can put a price or return on investments and insurance, if something should happen to you, taking care of your minor children and relieving some of the weight from your loved ones’ shoulders is priceless.

Obviously, these questions should be more of an open conversation, but you get the idea. Also keep in mind that these few questions are just the tip of the iceberg and far from all the questions that should be asked of you. When diving deeper into specific areas (investments, insurance, education funding, debt, etc.), much more information is needed to provide the very best recommendations for your personal situation. After all, personal finances are “personal.”

Unfortunately, it’s all too common to receive cookie-cutter recommendations that provide a generic solution, simply because of a lack of effort to take the time and gather appropriate information. If you ever walk in and ask to invest or work with an advisor who doesn’t ask some of these basic questions, walk away, because there’s a good chance they’re doing you a disservice.

As we embark on this clarifying journey together, I encourage you to submit any ideas, topics, or questions to info@clarifywealth.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. “Let Me Clarify” is a weekly blog containing Chad Baxter’s insights and thoughts about a variety of topics. To learn more about Chad, click here


This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. Clarify Wealth Management and LPL Financial do not provide legal advice or services. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.