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Questions to understand

How do you make important investment and financial decisions?

People have all kinds of ways of dealing with money. Some people meticulously track everything because the organisation and control gives them a sense of security. Some people hide their head in the sand because money creates so much anxiety that they don’t want to deal with it. Others need some sort of deadline like that of investing before the 31st of March. For them statutory deadlines etc makes them move and do thingsYour advisor should want to know your approach so he/she can figure out how to best work with it.

How do you envision your life 1 year from now? 5 years from now?

Most people think financial planning is about retirement, which for a lot of my clients is 20 to 30 years down the road. But there’s a lot more to your financial life — you could be getting married, buying a house, having children or all of the above. All of those things play a huge role in your overall financial well-being. A good planner should not only help you create the life you want in the future but help you address the things you want and need now.

What changes do you expect in the future in your finances that you wish to plan for?

If you’re in your 20s, 30s or 40s, you’ve likely already experienced a lot of change in a short period of time. Just as much fluctuation is likely on the horizon. Your advisor should understand all of the potential changes coming your way and be able to help you prepare for them.

Is your outlook generally optimistic or pessimistic concerning the future?

Now we’re getting into things you may have not initially thought a financial advisor would address. But your money mindset is key to understanding some of your behaviours around money. So knowing traits like whether you’re optimistic or pessimistic about the future can help your advisor address any underlying issues about money you may have.

What are your most important non-financial concerns and objectives right now?

Money is almost never a problem in and of itself. It’s a tool to help you get what you really want out of life. Dick Wagner, in his book Financial Planning 3.0, put it best when he said “so much of the financial planner’s work takes place in conversations about feelings, dreams, meaning and purpose.” Your advisor should explore what really matters most to you and help you align your money with those values.

Have you ever worked with a financial advisor before?  

 Your previous work with an advisor is important for a couple of reasons. First, as I said, “advisor” covers a wide range of concepts. So it’s good to understand what experiences you’ve already had and how they’ve impacted your understanding of what financial planning is. Second, if you’ve never worked with an advisor before, your new advisor should help you understand what his or her process is like and how it may differ from other advisors.

What are they keys to making the financial advising relationship successful for you?

Advisors are in a relationship business, and the key to a good relationship is making it work for both of you. You should know for yourself what an ideal planner relationship looks like and that should be clear to your advisor as well. If you’ve never had an advisor before, think about other service relationships you’ve had in the past and why they were or weren’t fulfilling.

What would you like to accomplish through financial planning?

This is similar to other questions about your financial and non-financial goals, but gets a little more in depth on what you think financial planning is and what you hope to accomplish. The key here is making sure that you and your advisor both have the same expectations.

Why do you think you need help?

Lastly, now that you know what you want to accomplish and why, your advisor should want to understand why you think you need help. I’ve met plenty of do-it-yourselfers who just want a roadmap. Other people want more handholding because they don’t like dealing with money. So whatever that reason is for you, your advisor should understand and serve that need.

 

 

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Questions

Magic Questions on Risk Tolerance

Investors usually do not understand words like “Risk”, “Tolerance ” or the combination of these words.

Hence while assessing their risk profile it helps to ask questions that genuinely reflect their risk ability

Some key questions are:-

1)  To what degree are you willing to deal with a drop in your portfolio?

Very basic question to assess ability to handle loss

2) What about repeated drops?

Basic question to assess ability to handle further loss. This provides the degree of risk tolerance 

3) Have you ever lost any serious money that  affected your lifestyle, plans, or sleep.If not, do you think that investment losses would affect your overall spirits, sleep habits, relationships, health, or work? To what degree?

This reflects whether the client has evidence to prove his risk tolerance or is it just what he currently believes to be his ability to manage risk. Because if it is the latter then he may behave inconsistently in the wake of a market meltdown when he actually confronts a loss even though it is notional in nature.

4) Has anyone in your family or close to you lost any serious money? If so, how did that loss feel to you? Did it affect your actions with regard to money?

This brings out his actual feelings and reactions because of the past experience. It could be that there was a loss and they handled it with a cool mind or it could be there was a problem and they all felt miserable and could never emerge out of it.

5) Are you willing to take more risk with discretionary income usually spent on non-essentials or toys or can you also touch your non discretionary income that is used to purchase essential goods and services if you have to achieve a big need of yours?

This shows whether he is actually risk tolerant or whether he is just ok to take on small risks

6) Do you and your spouse or partner see risk he same or differently?

This will indicate the journey you are likely to experience with the client. If he and his spouse see things very differently then during a meltdown you can expect indecision and undesirable behavior.

7) Do you care more about how well you do in terms of dollars accrued or how well compared with your friends and family?

This reflects whether the client is sorted out or not. A goal oriented client will be more stable in the investment journey compared to one who gets influenced by friends

8) Which is more important to you, beating the market or meeting your goals?

This would help you understand the client and his future reaction to market volatility. As long as he is goal oriented he will remain agnostic to market behavior in general and would make a better client then otherwise 

9) Do you regard financial risk solely as the loss of money? Or do you consider lost Opportunity as a form of risk too?

This would tell you whether the client would go along with risky bets because he or she consider opportunity loss as a risk. For such people a little loss is ok but in the long term they desire to achieve more wealth

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Dharam Lessons Questions

Key Questions 1

Questions that advisors should ask clients to unearth deeper insights and prepare a better plan for them.

1)  How do you make investment decisions?

The idea of this question is to figure out whether the client understands investing in the first place or is he like most a victim of greed and fear.

2) Can you recall your earliest memory of money and of investing?

Our first memories of money usually becomes the foundation of his thinking and beliefs. For example if one has seen scarcity in  childhood, he or she is likely to be extremely risk averse. Such information becomes extremely critical in managing the client. Remember every client like every patient is different. Knowing the difference is as important as knowing the similarities.

3) Do you like to hike or tour alone or go with a group?

This gives an idea about his mentality; whether he will have a tendency to follow the herd or go independent. Again this information helps the Advisor plan his course of action with the client; how much to work on behavior management.

More Questions to follow ………