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Putting your advisor to the test with questions

POSTED: September 5, 2008 5:01 a.m.

Would you take your car to a mechanic whose car breaks down all the time? Would you go see a doctor who is constantly sick? Would you use a hairstylist that has a bad haircut? Then why would you use a financial advisor who doesn’t make good financial decisions in her or her own life?

The Bible says that “wisdom is proved right by her actions.” (Matthew 11:19) We all make choices on a daily basis, but what do those choices say about us? Do the choices that we make prove that we are wise? Do the choices of people whom we trust prove that they are wise? I believe that this is a critical question to ask of many people that we deal with both personally and professionally. Your financial advisor is no exception.

Our actions can be a good indicator of how trustworthy we are as well as other’s actions can indicate how much confidence we should put in them. So how can you tell if your financial advisor is wise? How can you tell what their actions are?

Here is a good place to start. If your financial advisor tells you that an investment is so great that you would be making a big mistake not to put some money into it, you may want to ask them if they have their own money in it.

Now, let me clarify here. If a financial advisor tells you to invest in a mutual fund, that doesn’t necessarily mean that they should own the exact same one, as their goals and risk tolerance may be different than yours.

But you may ask them if they personally own mutual funds rather than individual stocks, bonds, precious metals, real estate, etc. You may want to ask if they own mutual funds from the same family (aka mutual funds managed by the same management company) as the ones they are recommending to you.

If your advisor tells you that you need life insurance, you may want to ask them what type of policy they have. If your advisor tells you to make an estate plan, you may want to ask them how they have prepared for their family in the event of their death. All of these things vary according to each person’s situation, so I am not implying that you should have the exact same thing that your advisor has, but it will be valuable to know if the person that is recommending you a certain investment owns that type of investment. It should make you feel better knowing that they have at least gone through the process before you.

I have found that I can always explain an investment or a concept better to someone else if I have been in their situation before myself because I understand it not only logically, but experientially. There is a lot to be said for book knowledge, but ask the tough questions to make sure that whoever you are trusting to handle your finances has experience, too.

Jeff Hupman is a financial advisor with Christian Values Investing. You may reach him at 748-9321.

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