Good questions equal good advice

By Harold Geller | November 9, 2009 | Last updated on November 9, 2009
3 min read

It should go without saying that financial advisors have a duty to know their clients. This means that they must inquire about their clients’ financial circumstances. How can a financial advisor go about this process without being intimidating and yet still manage to get the information they need to provide good advice? The answer may be as simple as asking the right questions to begin with.

Some truths are self-evident

Financial advisors often complain that had they possessed a specific piece of information they would have given different advice. Clients often complain they had no idea the financial advisor needed the missing piece of information. Whose fault is this failure to communicate?

Laying blame

If we start with the belief that the financial advisor is a professional trained in the technique of gleaning information from clients and that the client must always provide appropriate information as requested, the fault for a missing piece of information should be laid at the feet of the financial advisor. What kind of questions then are likely to solicit accurate and complete information from the client?

Just answer the question

Closed questions to which the answer is simply “yes” or “no” are generally not good practice as they assume too much and glean answers that are not very revealing. By asking open-ended questions, an advisor can elicit far more information and therefore serve their client better.

That nasty word “risk” again

“Risk” is a word well understood in the English language but not well understood in the lexicon of the financial world. No universally accepted definition of risk exists in the industry and a review of the various “Know Your Client” forms used by financial advisors highlight the broad differences among the applications. What does a client tell a financial advisor in response to the question…Would you categorize your risk tolerance is being high, medium, or low? The client may not understand what “risk tolerance” means, and may not understand the difference among the three choices. Being Canadian, the odds are that clients will select “medium”. As a nation, we hate to be anything other than “average” and financial advisors must account for this cultural inclination.

What about investment objectives?

Financial advisers should take the time to prepare their questions in a manner intended to obtain useful facts and not simply to fill out a form. A question like…What are your goals? will draw out information about retirement, gifting, major purchases, children, spouses, travel, education and possibly other major expenditures. Are your objectives capital appreciation, income, preservation of capital or speculation? will elicit a dramatically different response that in the end may be entirely meaningless.

Gauging sophistication

Does it make sense for a financial advisor to ask the client…How sophisticated are you? If the client understands the question, the client must respond…In relation to what or whom? The financial advisor should ask not only what securities the client has purchased or sold in the past but also determine the investment experience of the client. The relationship between the client and former advisors may have been limited to the client buying whatever the advisor suggested, with the client not learning anything in the process. Only a proper and open-ended question can determine the sophistication level of a client and only the financial advisor has the experience and training to judge this.


Any computer can identify that a person with $10 million in assets and no debt can risk a 10% loss whereas someone with $100,000 in assets and who is also debt-free may not be able to sustain any loss. Only a professional financial advisor has the education, experience and knowledge to probe meaningfully into the circumstances and sophistication of the client to determine their risk profile and ultimately suggest appropriate investments. This process requires careful, open-ended questions to procure an accurate profile. At the same time, the advisor must always remember to educate the client by communicating sufficient information to so that an informed decision can be made. The ability to help clients have a role in their own financial planning is the ‘value add’ that a professional advisor brings to the table and the ability to ask good questions is invaluable in this process.

Harold Geller