10 things your advisor will ask you

By James Dolan | November 8, 2014 | Last updated on November 8, 2014
3 min read
question marks
iStockphoto.com / Serdarbayraktar

Your relationship with an advisor should be based on absolute trust—your estate preservation and potential legacy depends on it. Similarly, if they have your best interests at heart, they need to know what those goals are and whether they can reasonably provide the services you need.

To that end, here are 10 questions a discretionary money manager should ask you—questions you must be prepared to answer—before agreeing to take you on as a client.

1. What are you trying to do with your portfolio?

By knowing what specific life goals you’re trying to achieve—retire to Maui at age 60, leave an endowment to a hospital, buy another company—your wealth manager can build a portfolio that works to meet them.

2. Give me an idea of your investment experience. Have you ever managed your assets yourself? How did that work out?

Are you a relative newcomer to financial markets, or a savvy veteran? Be ready to give the real answer, not one that jives with your self image. Your experience—and the results you achieved—will determine what kinds of assets your manager recommends. If you did some do-it-yourself investing and it went south, share the details. It helps the advisor understand your investing mindset.

3. How are you currently investing outside your business, if you have one? What assets do you hold?

Diversification is likely one of your wealth manager’s primary goals. By telling prospective managers how far you’ve diversified yourself, you help them better understand what has to happen next.

4. What other assets (outside your business and investment portfolio) do you own?

Your home, vacation property, rare stamp collection—all of these can have a significant impact on how your prospective manager allocates your portfolio.

5. How much income do you need from your portfolio right now? In the future?

Obviously, the need for income can make a big difference to portfolio allocation: a lower income requirement means a longer time horizon to achieve needed returns and gives a manager more opportunity to be aggressive and invest for growth, and vice versa.

6. How did you react during the 2008 downturn?

Understanding how you responded to the worst recession in more than 80 years will tell a wealth manager how much risk you can handle, and how you’re likely to react when the market takes a turn for the worse.

7. What’s your business’ exit strategy? How do you expect to transition out of your business?

If you plan to sell, your wealth manager will be a key player in helping prepare for that liquidity event by implementing specific investment strategies designed to diversify holdings and save tax. If you plan to remain involved in your business (and continue to draw a salary from it), he or she can steer your portfolio toward growth opportunities rather than income.

8. What have you done to safeguard personal and business assets from creditors?

This is a critical question.Your answer helps determine the exact structure of your portfolio. If protection is needed, your manager might specifically creditor-proof assets or allocate them to offshore accounts. If creditor protection isn’t a significant concern, or if the issue has already been addressed, joint ownership with a spouse, a family member, or business partner might be a better strategy because of its inherent tax and estate planning advantages.

9. What are you doing to organize your business and personal assets in a tax-efficient manner?

Tax minimization is an important goal for all investors, but even more so for wealthy people. If you’re currently using advanced tax strategies (holding companies, trust structures, multiple wills, etc.), your wealth manager needs to know. If you’re not, he or she will want to investigate them with you and likely start setting them up.

10. What have you done to split income, dividends or company ownership with a spouse or life partner?

Your answers show how proactive you’ve been in creating tax efficiencies in your personal finances. They also indicate where there may be overlap between your business and household finances so that any problem areas can be cleaned up before they catch the attention of Canada Revenue Agency.

James Dolan