The 5 Most Important Questions to Ask a Financial Advisor

questions to ask a financial advisorHaving the right financial advisor in your corner can mean the difference between huge profits and devastating losses.

But how do you pick the right one?

A quick Internet search reveals dozens of articles devoted to the topic of which questions to ask a financial advisor.

And they're all pretty much the same. They touch on the basics, such as credentials and certification, fiduciary status, and investment philosophy.

Those are important topics to cover, but they won't help you determine whether an advisor is truly aligned with your interests.

Money Morning Chief Investment Strategist Keith Fitz-Gerald, a seasoned market analyst with more than 30 years of global experience, shared five questions to pose to prospective (or current) financial advisors that go beyond the obvious...

Five Critical Questions to Ask a Financial Advisor

No. 1. Do My Investments Match My Risk Tolerance and Expectations?  

Many investors only think in terms of returns rather than risks. But that's backwards, especially in today's rocky investing climate.

EKSO stockIt's important to find an advisor who can help you navigate the market volatility that's the norm for now and the foreseeable future.

The best advisors will help you pick investments that will help you meet your individual goals in your time frame, regardless of whether it's an up or down market.

"No financial advisor worth his or her salt would let a client liquidate into a bear market," says Fitz-Gerald. "And the good ones ensure that their clients have enough cash and ultra-safe investments on hand so they don't have to."

No. 2. How Do My Total Returns Stack Up?

Many investors fixate on finding the next "hot stock" that will deliver 25%, 50%, 100% returns.

But successful investing is a matter of continuous performance, not instantaneous performance.

This means greater returns are possible over time by managing total returns, rather than focusing on percentage returns of specific stocks.

"This is one reason I emphasize income, and in particular, the right dividend stocks," says Fitz-Gerald. "Dividends and reinvestment can account for 85% to 90% of total stock market returns over time."

In fact, dividends can be so steady and continue growing over time so that you actually make more in dividends than you paid for the stocks that produce them.

Many investors may feel that they don't have the luxury of time to focus on long-term results.

"Young or old, you want to learn to work with time, instead of trying to cheat it at every opportunity," says Fitz-Gerald. "The right advisor can help you do that effectively."

These next questions to ask a financial advisor are of utmost importance - and yet many advisors can't answer them at all...

No. 3. Under What Conditions Will We Sell?

Many financial advisors either can't or won't answer this one. They don't want you to sell, because Wall Street makes its money from your money.

But knowing when to cut losses - and being able to clearly articulate under what conditions this would happen - is critical to a good financial advisor.

"If your financial advisor can't lay out very specific reasons for when and what you would sell, move on," says Fitz-Gerald.

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Your advisor's plan can be as simple as a policy of using 25% trailing stops on investments, or it can be more complex.

Just make sure there is a plan in place.

No. 4. When Will We Buy?

This is a logical extension of the previous question, and many advisors can't answer this one adequately, either.

There are two main considerations here.

First, more than 90% of portfolio volatility comes from structure. If your portfolio's structure is sound, you'll achieve far better returns. Fitz-Gerald recommends the proprietary Money Map 50-40-10 portfolio structure.

Second, buying into the markets without understanding the big picture is a surefire way to get hammered. But investors who buy when things seem at their worst tend to enjoy the best returns.

"I'd fire any advisor who does not recommend cautious additions to your portfolio when everyone else is running for the hills," says Fitz-Gerald. "At the very least, they should ask you to consider rebalancing periodically to capitalize on prices that would otherwise not be so low."

No. 5. How Are You Being Compensated?

Many big investment houses and managers charge 1% to 2% account management fees. These fees chip away at performance over time.

In contrast, fee-only advisors are independent, disclose all conflicts of interest up front, and do not have a financial stake in your investments.

Stick with the latter, says Fitz-Gerald.

Get more investing tips and market insight from Keith Fitz-Gerald here...

Keep More of Your Money: The deadline for filing 2014 taxes is fast approaching. While what you pay this year is largely determined by what you did last year, now's a perfect time to take a few steps to make sure you don't fork over more than you have to next year. Check out Tax-Efficient Investing in Five Simple Moves...