What is with all these personal questions?

Why is my financial planner asking me all these personal questions?

As a financial planner, I have to ask many personal questions. It helps me do my job. I may ask the following:
  • Age
  • Risk tolerance
  • Income
  • Net worth
  • Other investments
  • Tax rate
  • Investment time horizon
  • Liquidity needs
  • Investment experience
  • Height, weight, health history

Why would I need to see a 401(k) statement if I’m not managing it for a client? I want to make sure that the whole portfolio, including what I manage and what I do not manage, is properly balanced. Without seeing the 401(k) investments, the portfolio could be overweight in one area.

Risk tolerance, income, net worth and tax rate are all useful in creating a portfolio for the client. Some people can handle market volatility, others can’t. Do we need to use investments that are tax sensitive to help reduce taxes?

Your investment time horizon can differ between accounts. You may have some money for a child’s college education that will be needed in a few years, while your retirement accounts won’t be touched for much longer. This may mean we want to be more conservative with the investments that will be used soon.

Your health history is also important when calculating retirement needs. We want to make sure you don’t run out of money in retirement! You will be asked about your height, weight, and health history if you are applying for any type of life insurance. This information is used to generate proposed insurance quote. However, this quote is not guaranteed and is subject to approval by the life insurance company’s underwriters.

Gathering this information is also part of the industry rules. The Financial Industry Regulatory Authority (FINRA) as created a rule to help planners and their supervisors determine the suitability of an investment. Without this information, it may be tough to determine if an investment or investments are right for the investor.

For example, if we put $10,000 into a risky investment, is it suitable for the client? If the client is young or has $1,000,00, it could be suitable for the client. If the client is 80 and only has $15,000, then it is definitely not suitable.

Most transactions are reviewed for suitability to protect the investor. The collected information helps the supervisors determine if the transaction is suitable. If the investment is not found to be suitable, the transaction can be rejected or more information may be required.

Yes, a financial planner can ask many personal questions. It may even make you feel uncomfortable. However, your answers are kept confidential. In the end, the better your financial planner knows you, the better job he can do for you.

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