What You Should Never Say To An Investment Advisor

Hiring an investment advisor can be great for managing your financial growth. With their financial expertise, you can more easily mitigate tax obligations from investments and cut down on the time you spend managing your finances. Advisors can also help their clients avoid amateur investment mistakes, which you may have otherwise made due to lack of experience. Your advisor can also guide you through a market downturn, so that you don't make emotion-driven decisions that cost you in the long run. 

Vetting an advisor may not be easy. When taking the steps to choose an advisor, you can do your own due diligence by performing a thorough background check or talking with their staff. While you should ask probing questions during your review, you also want to steer clear of subjects you might be better off avoiding in a meeting or making any blanket statements you might regret later. Saying the wrong things to your financial advisor could influence your entire working relationship, and getting off on the wrong foot with them is a mistake that could put your investments at considerable risk down the road. If you're looking to partner with an investment advisor, holding off on saying these things could save you a lot of trouble.

While your investment advisor may appreciate a level of trust, it is crucial not to give them complete reign over your finances. Especially when you're dealing with discretionary accounts, where the advisor does not need permission before moving your funds, you need to understand the risks involved with a lack of oversight. Any mistake on the part of the advisor (on account of lack of experience or knowledge) can put your hard-earned cash in jeopardy. For instance, if the advisor has not sought your approval first, they may incur a capital gains tax while rebalancing your portfolio and leave you on the hook for an array of expenses you weren't prepared to pay.

Furthermore, open communication is also crucial for advisors looking to personalize growth strategies to suit your individual goals and risk tolerance. If you completely remove yourself from the process, the chance of a mismatch between goals and strategies increases. For instance, if not communicated properly, your advisor may underestimate, or overestimate, your willingness and capacity for making risky investments. Everyone's views on conservative or aggressive investment strategies will vary based on their needs and preferences, so limiting communication with your advisor regarding these topics has the potential to derail your entire vision for your financial endgame.

While checking your advisor's credentials — such as the firm they are registered with — is a good way to evaluate them, you should stray away from eliciting any confidential information out of them. Asking questions like "Who else is your client?" or "What funds do they invest in?" puts your investment advisor in a precarious position, since they are bound by the rules of regulatory authorities like the Securities and Exchange Commission (SEC) to not give away personal information about their clients.

Furthermore, asking your advisor too much about their past performance is not as strong a metric for evaluation as you might think. When you ask questions like "How was your performance last year?" you're forgetting an essential piece in the equation: your unique financial situation. From an investment advisor's perspective, each client has their own unique constraints, income streams, and financial obligations. A 3% portfolio gain for one client could be satisfying for them but may not paint the right picture for another who seeks a 20% return. Therefore, even if your advisor tells you how they have fared in the last few months, the work they did may not translate to your individual situation. You're better off asking them for more details about their investment strategy or how you can work together to set measures for evaluating the performance of your specific assets.