Have you ever wondered why, when you open an investment account, no matter how small, advisors ask for every little detail about your money, income, debt, savings, investments, real estate, personal assets, goals, experience and even attitudes toward investing?
Seriously, do they really need to know?
Actually, yes. We as advisors have a legal obligation to make suitable investment recommendations to clients. To know what’s suitable, we need to know your complete financial picture. Without this information, we cannot help you.
It makes sense when you think about it. How can an investment advisor make appropriate recommendations for your situation, without details of your investment objectives, tolerance for risk and financial circumstances?
It’d be like giving a doctor your medical history, but omitting the STDs, drug abuse and alcoholism because you’re embarrassed about it. Yet knowing that history might be the thing that helps the doctor accurately diagnose your current ailments.
Investment advisors are highly regulated.
If we purchase or sell a security without reasonable grounds to believe that it’s suitable for clients, we could be disciplined and fined. Penalties for infractions can be up to several thousand dollars and a few years in jail.
Nobody wants that, so we do our best to stay out of trouble. You might be interested to know that it’s unlawful for an investment advisor to:
- Make a recommendation to an advisory client that is not suitable based on their financial situation, objectives, goals, needs and non-financial considerations
- Disclose the identity or investments of a client
- Publish testimonials (seriously, these are forbidden)
- Cause clients to invest in securities that are inconsistent with the level of risk that clients have agreed to assume
- Guarantee that a specific recommendation will result in profit
- Lend to or borrow money from a client (even close relatives)
- Recommend the same security to multiple clients without regard to suitability
- Promise something the advisor can’t or doesn’t know how to deliver
Essentially, financial advisors are required by law to be nosy.
Prior to giving investment advice, we build a financial profile of each client to understand suitability for various options. If a client refuses to give any financial information or discuss objectives, we can’t help them. It would be unethical.
Be prepared to supply full names, birth date, citizenship, social security number, addresses, phone numbers, email and information about spouses and dependents. You may also be asked about any or all of the following:
- Tax status (federal, state and local obligations)
- Income sources (salary, investment, pension, disability, social security)
- Cash, CD and savings accounts
- Value and composition of securities holdings
- Pension and retirement accounts
- Cash value of life insurance policies
- Personal items such as jewelry, autos and art
- Real estate holdings
- Current debt obligations (credit cards, tax payments)
- Long-term debt obligations (mortgage, auto loans, student loans)
- Loans against cash value of insurance
- Loans against 401K plan
- Marital status
- Investment experience
- Attitudes and values about money
- Number and ages of dependents
- Employment stability (yours and family)
- Family demographics
- Current and future educational needs
- Current and future health needs
- How much loss you can tolerate (5%, 25%, 50%, etc.)
- Current investment holdings
- Expectations regarding returns
- Client investment temperament (are you bored with stable investments or fearful of volatile ones?)
- Tolerance for overall market fluctuations (do you obsess over every little market move or pretty much ignore it?)
- Minimum income requirements
- Liquidity requirements (cash needed)
- Time horizon (short and long-term needs)
- Life cycle considerations (young couple, mid-life or nearing retirement)
- Tax management (characteristics of investor)
- Unique circumstances (special needs, investments to avoid)
Do not be embarrassed to answer any question.
Even if you think your numbers are low, you’ve made bad investments, or you’ve saved nothing for college and your kid just graduated high school, good advisors won’t judge. They’ll work to understand your situation and provide you with options, depending on what you want to accomplish.
The more you share, the more your advisors are able to help you. And if they’re good at managing money, they can grow your nest egg, even through tumultuous markets.
Does your advisor deliver exceptional returns?
About Diane Cohn
Diane Cohn is a seasoned marketing professional with a background in real estate, finance and tech. When not geeking out on digital strategies for driving traffic, you'll find her on YouTube feeding her creator addiction.