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Just like working with a doctor or therapist, working with a financial advisor requires a level of transparency and candor that can be daunting. The more you share with your advisor, the better they’ll be able to do their job and help you optimize your financial life.
1. Goals
The first thing a financial advisor needs to know is why you’re coming to them. Here are some common reasons you might seek professional advice:
- You haven’t been able to get out of debt.
- You need help making smart choices with an inheritance.
- You’re getting married and combining finances.
- You want someone to review your own planning and offer reassurance or suggest improvements.
Your goals will then create the framework for your advisor’s recommendations.
2. Values
Your financial advisor needs to know what you care about so they can devise a plan that you’ll be excited to follow. It’s important to share your philosophy on the following:
- What motivates you to save money.
- Companies or industries you don’t want to invest in.
- Your dedication to regular donations.
Money is a tool to achieve what’s important to you in life, not something you accumulate for its own sake.
3. Challenges and Concerns
“Your advisor needs to know how you feel, not just what you have,” says Brandon Renfro, CFP, a financial advisor in Longview, Texas.
We all struggle to make optimal choices with our money. Here are some common reasons:
- You grew up poor and have a scarcity mindset.
- Your parents never talked about money—except when it was stressing them out.
- You need to live in a certain city for work, but the cost of living is stretching you thin.
- You never learned about personal finance in school.
“Even planning around very technical issues like retirement income and tax efficiency isn’t all about the math,” says Renfro.
4. Previous Experience
Sharing your previous experience working with a financial advisor can help a new advisor see if you’re a good fit for each other.
“I always ask what they liked and didn’t like,” says Marguerita Cheng, CEO of Blue Ocean Global Wealth. “One client told me that while he liked his parents’ advisor, he felt annoyed that the advisor would share his personal situation with his parents.”
Sharing what has disappointed or delighted you in the past can help a new advisor meet your expectations—or recommend that you keep looking for a better fit.
5. Risk Tolerance
It’s one thing to try chapulines, and another to short Ethereum on margin. Whether your risk-taking is limited to the culinary or extends into cryptocurrency, your advisor needs to understand how much risk you take with your hobbies, your life and your money.
“I provide clients with a risk assessment questionnaire,” says William Bevins, a CFP, CTFA and fiduciary financial advisor with Cypress Capital in Franklin, Tennessee. “The assessment asks clients for their opinion on certain market scenarios. Ultimately, their results help form a risk profile used to begin building an investment portfolio.”
Bevins said that knowing a client’s risk tolerance helps him get portfolio allocations right early in the relationship, which helps build trust—the key to helping clients succeed long term.
6. Income
An advisor needs to know how much money you bring in each month and each year. It will help them create a realistic plan for meeting your goals and protecting your assets. Yet, some clients don’t disclose all their income sources to their advisor.
“The most common example I come across is when one spouse has a small Social Security benefit,” Renfro says. “Clients sometimes don’t provide that information and say something like, ‘Let’s just not consider that, and treat it like a cushion.’”
Undisclosed income can create problems when your advisor is trying to optimize your income or do tax planning, so don’t leave anything out.
7. Expenses
Accounting for your expenses can be tedious and scary. Nobody wants to feel judged for their spending habits. Unfortunately, your advisor needs you to either assemble this information for them, hand over your bank and credit card statements or give a computer program access to do it.
Most people need help identifying expenses to cut. Some people, however, need their advisor to tell them that “omakase” isn’t a dirty word: it’s okay to splurge on the chef’s best sushi once in a while.
8. Assets
Knowing what assets you have lets your advisor recommend how much insurance you should carry, project when you might hit your savings goals and suggest how much investment risk you should take.
They might point out that you need an umbrella policy to protect your savings, that you can afford a volunteer trip to Indonesia or that only investing in TIPS won’t get you a lake house.
9. Liabilities
Liabilities can be a drag on your monthly income and effectively erase your assets. But don’t be embarrassed by your debts: Advisors, like podiatrists, aren’t fazed by the ugly stuff you prefer to hide. Your $37,000 Amex balance is the equivalent of a toenail fungus—just something to knock out before it takes over.
Without full knowledge of everything you owe, even mundane recommendations can backfire. For example, maxing out your 401(k) could be a bad choice when you’re accruing interest three times faster than the stock market is growing.
10. Insurance Coverage
“Insurance plays a vital role in financial planning,” says Anthony Martin, owner and CEO of Choice Mutual Insurance Agency. “The more you share with your advisor about what types of insurance you have and your level of coverage, the better they can execute an investment strategy that reduces your exposure and allows you to live better.”
Your coverage can help or hinder your financial security—often in ways you’re not aware of. When your advisor knows what type of insurance you have and how much, they can help you understand where your protection falls short and strategize ways to compensate until you can increase it.
“For example, if you’re underinsured, your advisor may need to utilize investment products that allow you to access funds quickly,” Martin said.
11. Major Life Changes
Getting married, losing a loved one or giving birth to twins are just a few of the life events that can cause financial aftershocks. Make sure to tell your advisor about these so they can recommend situation-specific ways to protect your money.
That might mean discussing a prenup or postnup, helping you find a lost life insurance policy or explaining the benefits of a Roth IRA for kids.
12. Estate Plan
Estate plan? What estate plan? If you’re like most people, you either don’t have a will, power of attorney or living trust at all, or you haven’t updated them since Game of Thrones ended.
It’s normal to put off these tasks. Contemplating a fictional character’s death, disability or incapacity is entertainment, but your own? Not so much.
Let your advisor know what estate planning you’ve done, if any. They can explain what legal documents your situation warrants and why, then help you plan and execute them.
Already have a plan? Your advisor can see if it needs updating or could be optimized.
13. Medical Conditions
Medical issues can affect your ability to work, as well as the jobs and careers you can choose from. Your health plays a major role in estimating when you might need to retire, whether you’ll earn enough Social Security credits and how long your nest egg needs to last. And managing medical bills can be a nightmare.
Your financial advisor can help you plan to afford the care and support you need, but only if they know you need that help. If they don’t, you could miss out on opportunities to reduce your income tax bill, get better health insurance, safeguard your assets, protect your family and qualify for Medicaid.
14. Personal and Mental Health Issues
It’s important to reveal “personal issues, no matter how potentially embarrassing, if they concern money,” says John Stoj, a financial advisor at Verbatim Financial in Atlanta.
Maybe your ex targeted you for financial abuse or you have a history of depression that could take you out of the workforce. Maybe you have a secret second family, lost your life savings to wire fraud or can’t stop making prop bets.
No one wants to share their secret shame or relive traumatic events by explaining the financial fallout to a stranger. But these issues can have profound impacts on your financial security and your relationship with money.
You don’t have to go into detail, but your advisor needs to know about them. A good advisor will listen, offer compassion and factor these things into your plan.
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Why You Shouldn’t Hide Information From Your Financial Advisor
What your financial advisor doesn’t know can hurt you and your loved ones.
“I know a client who failed to mention a decade-old divorce decree to his advisor,” Stoj says. “The client passed away unexpectedly. Only then did the advisor and current wife find that the life insurance beneficiaries included the client’s ex-wife.”
Don’t be that guy. Disclose everything about your finances—how much you hate your six-figure job; how much you want children but can’t afford IVF; how you feel obligated to support your parents despite their horrendous spending habits.
Knowing the big picture will empower your advisor to help you improve your life by upgrading your finances.
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