Ask the right questions to help achieve your goals.
“The art and science of asking questions is the source of all knowledge.” Thomas Berger
When it comes to planning a financial future for yourself and your family, the knowledge gained from asking the right questions can make a big difference. You may have already built a great relationship with your advisor, or perhaps you’re just getting to know each other – regardless, it’s important to use your time with them efficiently.
An advisor is, in effect, a support system for reaching your goals. Once they understand your needs and aspirations, they can work with you and your family to provide an overall tax, estate and financial road map that you can follow for years to come. And by asking your advisor the right questions, you can get the answers you need to help plan your journey.
Here are 10 questions you can ask your advisor to get more value out of your next (or first) meeting.
What is your investment philosophy? Your advisor probably has a style or guidelines for managing your investments. Asking your advisor about this can lead into a conversation about how they allocate capital. For example, some advisors may use a “core and explore” strategy, where they build a core portfolio and allocate a small amount of capital for you to invest in any riskier or untested assets that you feel strongly about. Other advisors may manage your assets with a different style. The important thing is that you are on the same page when it comes to placing your hard-earned savings in the markets.
How often will we chat? Clear and open communication is key to a productive advisor-client relationship. Knowing how often you will meet with your advisor to discuss your portfolio is good start. On average, an advisor may want to touch base twice a year to check in and find out if there have been any changes to your goals or risk tolerance that would affect your long-term asset allocation.
Which is better: TFSA or RRSP? While this question has no absolute answer, it will start a conversation about what you’re saving for and the best way to get there. Using the Tax-Free Saving Account (TFSA) for shorter-term savings, to buy a car or to make another big purchase, may be better since any withdrawals are tax-free. Contributions grow tax-free and are accessible at any time. On the other hand, the Registered Retirement Savings Plan (RRSP) lowers your annual taxes because the contribution amount decreases your income. You can use the refund at the end of the year to boost your savings even more, making it an excellent saving vehicle for retirement. Check out this article for more information.
Do I need life insurance? There are people who believe they don't need a life insurance policy, whether it's because they think they’re too young, they have some form of coverage through their employee benefits or they simply haven’t considered it. But if the worst were to happen, how long would their legacy help provide an income and shelter for loved ones left behind? Life insurance can help make it possible for those you love to take time to grieve a loss, continue education goals for children and stay in the family home. Ultimately, insurance gives your loved ones choices about their future. This is the question that will likely begin a conversation with your advisor about estate planning. Your advisor will help you understand the sum of your debts and assets and illustrate how much it would cost per year to support your lifestyle. This article explains a bit more about life insurance.
Do I need an estate plan? Your advisor will undoubtedly answer this one with a resounding yes – and go on to explain why it’s important to name beneficiaries on your registered accounts, draft a will and name an executor. Your advisor can play a key role in setting up an estate plan for you. Here's some more information on estate planning.
How does volatility affect my investments? Volatility is part of investing, because many events affect the ebbs and flows of global financial markets. It’s easy for an investor to let emotions affect decision making, say, by becoming alarmed at a meaningful downturn in the markets and selling their investments at a loss. Many advisors say you should check your portfolio about as often as you go to the dentist. Putting the trust in professionals is hard sometimes, but staying invested over the long run is a good way to mitigate short-term volatility. This question will prompt your advisor to ask you about your appetite for risk and your investment time horizon. They can then build a portfolio for you that will help you sleep at night and ensure the assets are there when you need them. Learn more about market volatility here.
What’s all this about ESG? Asking questions about what you’re hearing in the financial news and various media sources can trigger some very important conversations with your advisor. ESG funds are prominent right now, and your advisor can tell you that they are funds with specific mandates to evaluate companies based on several environmental, social and corporate governance factors. Discussing this question can help your advisor learn more about your values as an investor. Do you want to avoid investing in big oil, firearms and tobacco companies? Your advisor can guide your portfolio away from certain sectors and companies that you don’t want to invest in. Here is an informative video on ESG.
What’s an ETF? An exchange-traded fund (ETF) is a basket of securities that tracks an index or a sector, such as the S&P/TSX Composite Index. This question gives your advisor the chance to explain the benefits and shortfalls of holding certain products in your portfolio. Then you can learn that ETFs are a low-cost way of gaining diversified exposure to a region or sector by investing in one single security. Perhaps you like the idea of investing in companies that pay a dividend, or you are curious about U.S. mid-cap stocks but not sure which ones to buy. There’s an ETF for every investment preference. Find out more about ETFs in this article.
What does it mean to wait out market volatility in a cash position? Some investors will often try their hand at timing the markets by selling when things become unstable and then buying back in at a lower price. However, financial markets are incredibly hard to predict with any accuracy, and you run the risk of being forced to buy back in at a higher price. This would have the undesirable effect of underperforming your own investments. Your advisor may say that “going to cash” (selling your investments) may come with a few problems. The first is when to get back in. If you sell, then you must wait for the markets to drop more to buy. Sometimes the opposite happens, and markets move upward instead. The second issue is the harmful effect of inflation on cash. If inflation is running at five per cent per year, for example, a dollar today is only worth 95 cents in a year, because, on average, goods and services will cost five per cent more. If you stay invested, then your advisor can build a portfolio that can potentially outperform inflation and add to your wealth.
What is behavioural investing? To put it simply, humans evolved with certain traits designed to keep us safe and alive. However, the instincts that prompted us to run from predators and avoid risk might not be quite as useful when it comes to investing. It has been documented that we feel the pain from financial loss twice as much as the happiness from gains. Your advisor can talk to you about the biases most investors display and the strategies for working your way through those feelings. Together, you can avoid making a snap decision that could affect your portfolio. Watch this video to learn more.
These are just a sample of the many questions you can ask your advisor during your next meeting. The main thing to remember is that asking lots of questions will encourage good conversations. You’ll find that your advisor probably has the answers and is excited to share the information with you.
For more information on these topics, visit the Solutions Extras section, where you’ll find a variety of useful content that could spark meaningful conversations the next time you speak to your advisor.