Asking the right questions is critical to finding a high-quality financial advisor that you can trust. One of the most important questions that you can ask is:
- How are you compensated?
Note that the exact wording is crucial. We did not ask, “How do I pay you?” or “What am I charged as a client?”. Use these limited questions and you might not get the complete picture or identify potential conflicts of interest.
For example, many financial advisors’ compensation include:
- bonuses for meeting sales goals
- spots on “educational” trips
- direct compensation for selling you certain products
Here are some great follow-up questions:
- Do you get paid or win anything based on the products you recommend to me?
- Do you receive compensation for our relationship from anybody other than me?
An independent advisor’s fee usually differs from the fees assessed by the brokers that work for the banks/brokerage houses. Brokerâ€™s fees are typically based on commissions for the trades and products (mutual funds and insurance products) â€śsoldâ€ť to their clients. This conflict of interest between the brokerâ€™s objectives and those of the client results in non-transparent and substantially higher client fees.