What to Ask Your Financial Advisor Each Year?

An annual financial review with your advisor is a valuable opportunity to assess progress, adapt to changes, and refine your financial roadmap. This dedicated time allows for a comprehensive look at your financial situation and overall financial health. Engaging proactively in these discussions helps ensure your financial plan remains aligned with your evolving life circumstances and long-term aspirations, providing a structured approach to maintaining financial health.

Evaluating Your Financial Performance and Goals

The annual review begins by assessing the previous year’s financial performance against your established goals. This includes reviewing progress toward objectives like retirement savings milestones, debt reduction targets, or funding for major purchases. Your advisor can analyze if your savings rate and investment contributions kept you on track.

A comprehensive review also examines your current financial metrics, including net worth and cash flow. Net worth, calculated as assets minus liabilities, provides a snapshot of your financial standing. Cash flow analysis reveals how money moves in and out of your accounts, highlighting areas for optimization or potential shortfalls.

This meeting is an opportunity to update your advisor on any changes to your short-term or long-term financial goals. Life events such as career changes, a desire for early retirement, or new savings targets directly influence your financial plan. Discussing these shifts ensures your advisor can adjust strategies to reflect your current priorities and help you gauge if your current trajectory will effectively lead to your revised objectives.

Optimizing Your Investment Strategy

Your annual review should focus on your investment portfolio’s composition. This includes discussing your asset allocation, which is the mix of different investment types like stocks, bonds, and other assets. Confirm that your portfolio remains adequately diversified across various sectors and geographies, as diversification helps manage risk by spreading investments.

Inquire about the performance of specific investments within your portfolio, comparing their returns against relevant market benchmarks like the S&P 500 index. Your advisor can explain how market volatility impacted your holdings and how individual asset classes contributed to your overall gains or losses. This provides context beyond just the raw numbers, indicating how your portfolio performed relative to broader market movements.

Revisit your risk tolerance to ensure your current investment strategy aligns with your comfort level for market fluctuations. If your feelings about risk have changed, adjustments to your portfolio’s composition may be necessary to increase growth potential or reduce exposure to volatility. Your advisor should also present recommended rebalancing strategies to maintain your target asset mix, which might involve selling assets that have grown and reinvesting in those that have lagged.

Adapting to Life Events and Future Needs

Significant life events necessitate adjustments to your financial plan, and your annual review is the time to address these with your advisor. Changes like marriage, the birth of a child, a job change, receiving an inheritance, or managing health issues can substantially impact your financial outlook. Discussing these occurrences allows your advisor to integrate them into your financial strategy, ensuring your plan remains relevant and supportive of your evolving circumstances.

Tax planning strategies are a key part of this discussion. Inquire about opportunities to optimize deductions, manage capital gains from investment sales, or explore strategies like Roth conversions to reduce future tax liabilities. Your advisor might recommend tax-loss harvesting, which involves selling investments at a loss to offset capital gains or a limited amount of ordinary income, typically up to $3,000 annually. Discussions can also cover the tax implications of charitable giving or how to structure contributions to tax-advantaged accounts like 401(k)s or IRAs.

Estate planning also requires attention during your annual meeting, ensuring your wishes for asset distribution are clearly documented and up-to-date. Review the status of essential documents like wills, trusts, powers of attorney, and healthcare directives. Any changes in family structure, such as new births or deaths, require updating beneficiary designations on accounts and policies to ensure assets pass according to your intentions. Your advisor can help coordinate with an estate attorney to make necessary revisions and prepare for future wealth transfer.

Reviewing your insurance coverage, including life, disability, and long-term care policies, is another aspect of adapting to future needs. Your advisor can help assess if your current coverage provides adequate protection for your dependents and financial obligations, considering factors like income replacement, outstanding debts, and future expenses such as college funding. This review helps identify any gaps in coverage that could expose you or your family to financial hardship.

Clarifying Advisor Services and Compensation

Understanding your advisor’s services and compensation is key to maintaining a transparent professional relationship. Confirm the fee structure and inquire about any changes since your last review. Common fee arrangements include a percentage of assets under management, typically ranging from 0.5% to 1.5% annually, flat fees for specific services, or hourly rates, which can range from $200 to $400.

Clarify the full scope of services included in your fees, ensuring you understand what financial planning aspects are covered and what might incur additional charges. This conversation also provides an opportunity to discuss communication frequency and preferred methods of contact, setting clear expectations for ongoing engagement. Inquire about any changes within the advisor’s team or practice, as this could affect your direct contact or service delivery.

Confirm your advisor’s fiduciary duty and discuss any potential conflicts of interest. A fiduciary is legally and ethically bound to act solely in your best financial interest, prioritizing your needs above their own or their firm’s. This standard requires transparency regarding compensation and any relationships that could influence the advice provided.