Top 6 Financial Advisor Interview Questions You Need to KnowLast Updated:
The primary reason why I began this site is that there were no real-world interview questions online for the wealth management industry. Instead people trying their best to prep for their upcoming interviews had to read through piles of generic interview questions that were unlikely to ever be asked and just wasted the applicants time.
Apparently this isn't a unique phenomena to wealth management. Over the past year I've had dozens of people reach out to me who are interviewing for either asset management or financial advisory roles wondering whether or not the interview questions (and the guide) I've written here are applicable.
The reality is that just as private wealth management is a subset of wealth management, wealth management is a subset of financial advisory services.
Certain firms will use the term financial advisor when speaking about roles that are analogous to wealth management roles at other firms. Other firms will use the term wealth manager for those that deal high net worth (HNW) clients and financial advisor for those who advise those with less wealth.
Practically speaking, if you're gearing up for a financial advisor interview then every wealth management interview question I've written on this site (or in the guide) is fair game and likely to come up.
The primary distinction between a traditional wealth management interview and a financial advisor interview is that a wealth management interview will spend a bit more time "in the weeds" on more technical finance concepts. Whereas a financial advisor interview will focus a bit more on behavioral questions (although you'll still get plenty of finance-focused ones).
Financial Advisor Interview Questions
Below are some of the more common financial advisor interview questions you'll face. Feel free to click the links below to be taken directly to the question and answer.
This is a bit of a trick question because the idea portfolio for any given client will be contingent on where they are in their life, what their near term and long term goals are, and what their underlying risk tolerance is.
The reason why this question is asked is really to see whether or not you preface your answer by saying that no singular portfolio mix is right for everyone. Instead, the portfolio construction process must be tailored to each individual client.
With that being said, whether a client has $100,000 or $10,000,000 most of the time they will be reasonably diversified with an emphasis on equities (unless they require a fixed amount of income per year). So, a hypothetical portfolio for a middle-aged individual with a medium risk tolerance might be 40% domestic equities, 20% international equities, 10% government bonds (US treasuries), 10% cash, 10% in commodities, and 10% in a structured product.
While a financial advisor involves making discretionary decisions on behalf of clients most of the time, often you'll have clients coming to you looking for advice due to wanting to place money into a certain risky investment.
During the period of irrational exuberance shown in the equity markets over 2020 and into 2021, many clients are hearing about certain so-called meme stocks having explosive returns and want to get in on them.
What every financial advisor must keep in mind is that they don't have final say over the decisions made by their clients. Ultimately they operate in an advisory capacity at the sole discretion of their client.
It is never a good idea to simply dismiss an idea that a client brings to you. Rather, you should seek to hear them out and then gently walk them through whether the risk/return profile of the hypothetical investment really aligns with their near term and long term goals.
This is always a delicate process. However, in an interview it's always highly impressive to show that you understand what the real role of a financial advisor is (which is to advise, not to dictate!).
This is a great question to ask as it will allow the interviewer to see whether or not you understand the difference between two incredibly popular forms of products.
Ultimately, both ETFs and mutual funds allow an individual to get some level of financial exposure to an asset class that would be hard to otherwise construct.
So, for example, the most popular ETFs (in terms of funds contained in them) closely track the S&P 500. It's far simpler and economical to buy an ETF of the S&P than it would be to buy a market-weighted amount of each of the 500 stocks that make up the S&P 500.
The primary distinction between an ETF and a mutual fund - for the purposes of a financial advisor - are the levels of active management involved. Mutual funds will generally be at least loosely overseen by a mutual fund manager who will make discretionary decisions. On the other hand, an ETF is much more proscriptive and its prospectus will clearly lay out what the ETF will invest in, which will be done in a more or less automated way.
ETFs are better to put clients into when you are looking for the client to track a certain index (which could be a more esoteric one, like a commodities index). Mutual funds are better when you want to give a client exposure to a certain industry or asset class, but want there to be some human-level discretion as to what companies are being put into the fund.
A final distinction to be aware of is that mutual funds have slightly higher fees than ETFs do on average (although both are very low compared to truly actively managed investment vehicles like hedge funds or private equity funds).
When we refer to the liquidity of a client's portfolio, all we mean is the quickness in which it can be turned into cash.
How liquid a client's portfolio should be will be contingent on how high their net worth is and what future cash outlays they may need to make. For example, for someone with a $300,000 net worth who needs to be ready to come up with a significant downpayment in the future, then the client's portfolio should be in cash, highly liquid products.
For others, they may be able to have a significant part of their portfolio locked into higher return, less liquid products. Some of these less liquid products would include hedge fund and private equity investments for the ultra high net worth individuals. But for those at the lower end of the net worth spectrum, there are still illiquid investments that can be made that offer higher return profiles.
The primary example that most financial advisors will put some clients into are structured products that lock up capital for a year or two and provide returns based off of certain conditions holding over that year or two time period.
This is a great interview question because a proper answer will show you understand the knock-on-ramifications of a rising rates environment to the multiple asset classes that a financial advisor must be aware of.
First of all, let's take a quick look at the current yield curve.
As you can see, 2-year and 5-year treasuries aren't pricing in much in the way of rate increases. We could get even more granular at looking at rate increases over the next year by looking at what are called Fed Fund futures (none of which, as of this writing, are pricing in rate increases).
But if we did have the view that rates were going to be rising soon - perhaps to curtail increasing inflation - then we would expect a few things. First of all, the most rate sensitive equities would fall the most. In today's market those are the tech companies because the bulk of their value is due to their future cash flows, which will be discounted back at a higher amount with a rates increase (thus diminishing the value of those future cash flows).
Second, housing prices have gone on a meteoric rise in nearly all developed nations over the past year due to changes in how people work and ultra-low mortgage rates. As rates increase the housing market will necessarily cool as mortgages will be offered at higher rates.
Third, real assets (commodities) tend to perform relatively well in inflationary environments.
In a rising rates environment client's should expect to likely see weaker growth (in real terms, taking out inflation) in their returns. If they are highly prioritizing generating cash from their investments, then you may want to speak to them about inflation-protected securities that will provide a set yield that will dynamically adjust by whatever inflation is.
If you have a bond maturing in one yield with a coupon of 5% that is trading at 90, then what is the yield to maturity?
In a financial advisory interview there are going to be certain technical questions that you just need to know. Some of these - as I've gone over elsewhere on the site - will involve knowing some macroeconomic or monetary policy terms, valuation techniques, etc.
It's always a good idea to know how to find the yield to maturity of a bond. For a bond that matures in one year, we can simply do: (C + (FV-P)) / P where C is the coupon payment ($5), FV is face value ($100), and P is the current trading price ($90).
Doing this, we'll get 15 / 90 or 16.67%. The reason why our yield is so much higher than the coupon rate is due to the fact that we're assuming that upon the bond's maturity we'll be paid back par ($100).
Hopefully this give you a taste of what to expect in a financial advisor interview. Of course, this site has dozens of other wealth management interview questions you can check out that are also fair game for a financial advisor interview.
If you want to be entirely over prepared, then you can pick up the over 180 questions I put in the wealth management guide. It'll probably be overkill for a financial advisor interview, but it will almost certainly make you look impressive!
Becoming a financial advisor of any kind is a deeply rewarding, but also challenging, career path. You will be a central figure in the lives of your clients and will have a non-trivial responsibility in helping them reach their goals.
As I always tell people who are interested in entering this industry, you should think deeply about why you truly want to enter into it. If you're focused solely on what you yourself will earn, you'll probably end up burning out of the industry. The most monetarily successful financial advisors are those who simply love dealing with their clients and would do so for a fraction of what they currently make.
If you're in the midst of preparing for interviews, good luck! Remember that you'll be entering into a quas-sales role, so you should sell yourself hard in the interview.