5 Vital Questions Advisors Should Ask New Clients

The relationship between a Financial Advisor and their client is tricky. Looking after a client’s financial future is a heavy responsibility for an advisor. How you approach initial customer contact and the questions you ask can be the difference between a successful long-term relationship or a lost customer.

Below are five key questions for creating a trusting financial advisor-client relationship. The following queries will show the customer that you want to understand them and create a platform for a transparent relationship. By starting on the right foot, future misunderstandings can be minimized. These questions fall into three broad categories: relationship, risk, and wealth accumulation.

Key points to remember

  • Successful financial advisors understand that their business is about more than making market recommendations.
  • Getting to know your clients and understanding their financial goals means building and maintaining relationships and understanding their hopes and concerns.
  • It also means assessing their ability and willingness to take risks and setting clear goals for success.
  • Here we offer some crucial questions to ask your clients in the areas of relationship, risk and accumulation.

Relationship Questions

1. What are your biggest money worries and how do you hope I can solve them with you?

This is perhaps the most important question to explore with a client. As an advisor, you are a problem solver and you need to understand what is expected of you from the start. It’s also a great way to build rapport and show the client that you’re on their side and want to make their life better.

2. Since investment returns go up and down, no matter how talented the advisor, how much should your investments go down before you fire me?

This question has two purposes. First, it sets the stage for the reality of investing that financial assets go up and down, regardless of the skill of the advisor. It also provides a starting point to educate the client on the details of investing in the markets. Second, the answer to this question can be filed away for the future, so that if a client panics after a 5% market drop, you can revisit the answers to that initial question, all while calming frazzled nerves.


Risk questions

3. What percentage loss in your overall investment portfolio would cause you great personal discomfort such as lack of sleep, worry and despair?

Financial professionals typically measure risk by standard deviation or volatility. Both the investor and the finance professional need to understand the level of risk an investor can “bear” before they are tempted to do something imprudent, such as selling low or dumping all of their mutual funds.

4. In which scenario would you feel worse: if your mutual fund went down 10% and you didn’t sell it, or if you sold your fund and its value increased by 10% after you sold it ?

Behavioral finance theory generally alleges that investors feel more uncomfortable with losses than with comparable gains. Evaluating what it feels like to see their investments lose value relative to selling and then watching the investment gain provides insight into an investor’s risk tolerance. To get real data, you might want to follow up and ask if this situation has ever happened.

Understanding a client’s risk tolerance can also help the advisor and client determine the overall asset allocation of the portfolio. The more risk averse investor will lean towards a greater allocation to bonds and fixed asset classes and a lower percentage to more volatile stocks and mutual funds.

Cumulation question

5. How will you measure the success of your financial investment portfolio?

When it comes to investing, there is usually a benchmark return for the client’s portfolio. For example, if the client has an asset allocation of 60% in stocks and 40% in bonds, the returns of the investment portfolio will likely be measured against the proportional returns of the S&P 500 and those of a Bloomberg Bond Index.

If the client answers this question by saying they expect a 10% annual return every year, the advisor should educate the person on historical market returns, to avoid any misunderstandings down the road.

What kinds of financial advice questions should an advisor ask?

Financial advisors should ask three key types of questions, including past experiences with advisors, lifestyle, and retirement/financial goals.

How can you have better meetings with financial advisory clients?

Holding productive meetings with financial advisors means communicating with clients on a personal level and respecting their time. Other tips for better meetings include engagement, not asking leading questions, and keeping industry jargon to a minimum.

What kind of questions should financial advisors ask?

Generally, the best types of questions financial advisors can ask are open-ended questions. That is, they don’t have a “yes” or “no” answer. Examples include, what major life changes do you expect in the future? What are your main financial concerns?

The essential

A long-term financial advisor-client relationship starts from the start. By asking the right questions, listening carefully to the answers, and creating an atmosphere of trust, both parties will be satisfied.

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