Three Questions to Ask a Financial Advisor to Tell If You Can Trust Their Investment Process

A simple way to see whether there’s real discipline behind the charts, jargon, and market talk.

“Good investment results start with rules, not opinions” - Paul Powell

Most financial advisors can talk about investing in a way that sounds reassuring. They reference the market, mention diversification, show you a colorful pie chart, and explain why you should “stick with the plan.”

But that raises a more important question:

What plan?

A trustworthy investment process isn’t built on charisma, commentary, or confidence. It’s built on structure: written rules, clear risk definitions, and real accountability.

You don’t need to be an expert to see whether that structure exists. You just need to ask three very specific questions.

These come from Financial Self-Defense: 27 Questions Every Investor Must Ask Before Hiring a Financial Advisor—a framework designed to evaluate advisors using evidence, not trust.

1. “Do you have specific written criteria an investment must meet before you recommend it—and can I see it?”

Advisors love to say they have a “thorough process.” The real test is whether that process exists on paper.

In professional settings, portfolios are governed by written standards—often in the form of an Investment Policy Statement (IPS) or a due diligence checklist. Before any fund, ETF, or manager is approved, it has to clear those standards. Cost, track record, risk behavior, style consistency, and other factors are defined ahead of time, not invented after the fact.

That’s what you want to see.

When you ask this question, you’re not looking for a speech about philosophy. You’re looking for a document, slide, or policy that spells out:

• what an investment must be

• what will eliminate it from consideration

• how those rules are applied across clients like you

A strong financial advisor can say, “Yes, here’s the written criteria our recommendations have to meet,” and walk you through it in plain language.

If, instead, you hear vague lines like “We look at a lot of things” or “Our firm has a research team,” you’ve learned something important: the process is largely informal, and you’re relying on the advisor’s judgment rather than a disciplined framework.

Written criteria are the difference between a system and a story.

2. “How do you define and manage risk?”

Warning: if the answer is “conservative, moderate, or aggressive,” that’s a red flag.

Most investors have been handed some version of a risk questionnaire that assigns them a label: conservative, moderate, or aggressive. Those labels feel tidy, but they don’t actually measure risk in a way that connects to your real life.

The key question isn’t whether you “feel moderate.” It’s:

How much loss can your financial plan tolerate before it’s in trouble?

That’s where concepts like maximum drawdown matter. A disciplined advisor should be able to tell you, in percentage terms, how much downside your portfolio is designed to withstand without derailing your long-term goals—and how they arrived at that number.

When you ask how they define and manage risk, listen for specifics:

• Do they talk about downside in numbers, not feelings?

• Do they relate risk back to your cash flow, time horizon, and goals?

• Do they review and adjust that risk level over time as your situation changes?

If the answer never gets beyond “We’ll put you in a moderate portfolio and ride out volatility,” risk is being treated as a mood, not a measurable boundary.

You don’t need the math. But you do need to know that your advisor has done it—and can explain the implications for your plan.

3. “How do we hold you accountable for performance against a benchmark?”

Most people assume accountability is built into the relationship with a financial advisor. In practice, it often isn’t. The client is expected to be patient; the advisor is rarely measured against anything concrete.

This question changes that.

You’re not asking the advisor to “beat the market” at all costs. You’re asking something more basic:

• What benchmark is appropriate for my portfolio?

• How do we compare my results to that benchmark over time?

• What happens if your decisions consistently fail to add value?

The key word in the question is “we.”

Accountability is shared:

• you commit to the agreed strategy and time frame;

• the advisor commits to a benchmark and to reporting against it in writing.

A disciplined advisor will say, in essence:

“Here’s the benchmark that matches your allocation and risk level. Here’s how often we’ll report your performance against it, net of fees. If our decisions aren’t adding value over a reasonable period, we revisit the approach and document the changes.”

An advisor who resists benchmarks, dodges the question, or tells you “you really can’t compare performance to anything” is asking you to accept an open-ended arrangement with no clear standard.

You’re not evaluating the market. You’re evaluating the decisions being made on your behalf. Without a benchmark, that evaluation is impossible.

What These Questions Really Tell You

Taken together, these three questions reveal far more than most investors ever see:

• The first shows whether investment decisions follow written rules or personal preference.

• The second shows whether risk is quantified and tied to your plan, or brushed off with labels.

• The third shows whether your advisor is willing to be measured—or prefers to keep performance vague.

You’re not trying to out-think financial markets.
You’re trying to determine whether your financial advisor is operating with professional discipline.

If they can’t show you their criteria, define risk in concrete terms, or agree on how you’ll hold them accountable, it’s not an investment process. It’s a relationship with investments attached.

The full Financial Self-Defense checklist includes 27 questions like these—covering experience, specialization, process, fees, incentives, and oversight. You don’t have to become an expert to protect yourself. You just have to start asking the kinds of questions experts ask.