5 Things You Should Ask Your Financial Advisor

These questions will help determine if an advisor is worthy of managing your money.

Options for middle-class investors seeking solid financial advice
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You'll want to bring more than a shoebox of records to your first meeting with a financial advisor. Arm yourself with these five questions, which can help you quickly sort the good stuff from the fluff.

1. Are you a fiduciary? Your financial planner is on your side or on his. And yes, most planners are male. The difference is summed up in two terms: fiduciary and suitability. A fiduciary is committed to act on your behalf. His responsibility is to recommend what is best for you and your finances, regardless of the impact on his own income. If you don't need insurance, he recommends that you not buy it. If the cost of carrying that hard-won vacation home is draining your retirement savings, he advises selling it. It's all about you.

[Read: Is This Financial Planning Dinner Worth It?]

Other advisors – regardless of the alphabet soup of acronyms and certifications they claim – may not be obligated to advise decisions that are best for you. Instead, they are held to the lower standard of "suitability." That means they are supposed to make recommendations that are "suitable" for you at the time you are making the decision. If your circumstances change, the advisor does not have to remind you to adjust your investments or strategy accordingly. So, if you once needed insurance and bought it from an insurance agent who represents himself as a financial advisor, he is under no obligation to remind you that you don't need to renew the policy, even if you don't need it anymore. The difference between "fiduciary" and "suitability" is key because it flows into the next question you need to ask.

2. How are you compensated for advising me? Typically, fiduciaries are certified as financial planners through the Certified Financial Planner Board of Standards, which holds a high standard for independent financial planners. Advisors who hold other designations (more on those in a moment) may blend advising with selling. "Selling what?" you may ask. They may sell stocks, insurance, mutual funds and other types of investments, for which they are typically paid commissions. They are supposed to sell you only investments that are "suitable" for you at that time, but what is suitable for them at any time is a commission.

Meanwhile, certified financial planners often present their fee structure as a virtue. Some charge an hourly fee, some charge by the project, some take a percentage of your portfolio and some blend these structures into a hybrid fee. How can you tell the difference? By asking the next essential question.

[See: 7 Mutual Funds That Make Huge Bets.]

3. What is the meaning of all those acronyms after your name? There's a certification for everything, and some specialties get multiple certifications. There are three ways to get certified as a divorce advisor, for example. Before you visit an advisor, plug each of those acronyms into this handy acronym decoder provided by the Financial Industry Regulatory Authority. That is where you learn that a "CPIA" is a Certified Professional Insurance Agent, and that label decloaks the advisor's compensation structure – the commission he gets by selling insurance – and his primary loyalty to the insurance companies whose products he sells.

If you are not sure what all those acronyms and certifications imply, ask the advisor to explain them to you in plain language, as required by the Securities and Exchange Commission's public disclosure statutes. The SEC requires advisors to list their affiliations and financial relationships on form ADV. As you narrow down your list of potential advisors, look up their track records with the SEC and see what they disclose to the government. Or, you could just ask the advisor for a copy of his form ADV. Once you ascertain how the advisor gets paid and that he doesn't have a disciplinary record, it's time get into the fit factors: Are you comfortable sharing your financial hopes, dreams, disappointments and current status with this person?