Three simple questions to ask your advisor.

In most initial meetings with financial advisors, it is usually the advisor that asks a bunch of questions to see where they can be of service. Often advisors are armed with well-rehearsed questions to try to uncover problems so they can provide solutions. As important as this is, you should also arm yourself with some questions so that you can interview the advisor just as much as he is interviewing you.

A relationship with a good financial advisor is probably one of the most important professional relationships you can have. Make sure you take the time to ask key questions. Although there are a myriad of questions you should ask, here are three questions I think are important.

1. How do you get paid?

It's time to talk openly about compensation. Afterall, the investment industry is regulated in such a way that compensation usually has to be disclosed. Knowing how a financial advisor gets paid help you to understand where some potential biases and even conflicts of interest may exist. The majority of financial advisors are commission based advisors which means they sell products like mutual funds, stocks, or insurance to make a living. It's important to know what kinds of products they sell. Do they only sell products from the company they work for or are they more independent? Even if they can sell products from many different companies, do they mostly sell products from one company? Is so, why?

In the mutual fund world, I am always amazed that people I come across have no idea if they bought their mutual funds with a back end load, front end load, low load or no loads at all. To me this is pretty important stuff. Afterall, I'm sure you don't want to be paying too much or worse yet, get taken advantage of.

Financial advisors deserve to get paid just like any other service or product business. At the same time, you deserve to know how they get paid so don't be afraid to ask. Good financial advisors have no problem justifying how they get paid.

2. What kind of research do you do?

I've always said that one of the principles of successful investing is good research. Good research leads to good decisions. Research does not guarantee success but it sure helps to minimize mistakes. If research is so important, they why don't people ask how financial advisors do research. The best money managers in the world are the best because they have a disciplined research process. These people can articulate their process succinctly and easily. Ask your advisor about their process, discipline, and beliefs. If you ask an advisor about research and they fumble around with the answers, chances are they don't have a research process. You might be surprised at how many financial advisors don't have a process.

3. What is your service strategy?

Studies have show that the two most common reasons people change financial advisors is because of lack of performance or lack of service. If that's the case, then why not ask the question right at the start? You should know what advisors do to service their clients and how often do they contact their clients. Find out how often they meet face to face and whether they service all clients the same or differently.

When it comes to service expectations, one great question to ask is how many clients do you have? Many great financial advisors may be excellent at what they do but they have a capacity problem – too many clients to service.

I think the biggest problem with service from financial advisors is simply managing expectations. Some advisors have become really proactive an offer formalized service guarantees or expectations right at the beginning, which simply sets the service expectations.

It's likely you will ask more than just three questions so here's a list of lots of questions to ask your financial advisor.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

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