Preparing for an initial meeting with a financial advisor is essential to having a successful and productive “interview”. Over time, we have found that investors are often most concerned about the fees associated with investing with a particular financial professional. Our goal, as advisors, is to provide transparent rationale of fees and expenses, and supply our clients/prospects with sufficient education to give them a firm understanding of the many different types of costs often associated with investing. Investors deserve 100% transparency when they put their hard-earned money with a financial advisor, and the information contained in this post will help any would-be investor to uncover ALL costs including those that may not be in clear sight. We all know that advisors should be fairly compensated for providing their clients with high quality investment advice, but it’s important to know how much is being charged, if there are any “hidden” costs, and if any conflicts of interest exist as a result of the compensation being paid. When your financial advisor makes recommendations, the following questions should be asked so that you have 100% clarity of how you’re being charged and, also, always remember that sales pressure tactics and sound investing rarely, if ever, go hand in hand:
- Generally speaking, how do you charge for your services?
- Do you sell products that have a level cost structure or do some investments you recommend cost more than others? And if that is the case, do you regularly sell more expensive products to clients?
- Are you paid any or all of the following: sales commissions, mark ups or mark downs, administrative & management charges, asset-based fees, financial planning fees, and/or are you compensated based on the costs associated with the sale or redemption of an investment (such as a deferred penalty on an annuity)?
- Do you receive any indirect compensation from investment companies (like mutual fund companies or insurance & annuity companies) and/or do you receive any “soft dollar” compensation (like winning a vacation for your sales efforts)?
- Do you impartially select your investment lineup for your clients or do you have personal incentives to choose one over another (for example, do the investment vehicles you recommend cost you less to use versus another)?
- Are there any hidden or additional fees, expenses, or costs that will impact my investment dollars (such as expense ratios in mutual funds)?
Knowing what you pay for the services rendered by your financial advisor in one very important factor that should help you decide on what kind of advisor is right for you. A qualified investment professional can help you make sound investment decisions, assist with financial goal setting and keep you informed about how the economy and financial markets are affecting your investment portfolio. There are many types of investment professionals—including brokers, investment advisors and financial planners. The person, or team of professionals you work with, will depend on the type of financial help you seek, and you need to know how these different types of professionals charge for the services that they provide. Also, if possible, it is good to have those all-in fees, expenses, and costs disclosed, up front, in writing.
Once you have a comfortable understanding of the answers you received after asking the six questions above, you have completed the first step in this very important process. Selecting the right financial professional will have a huge impact on your retirement and financial planning needs and if your advisor is not the right fit, your success is on the line. If you already have an advisor and you never asked the questions listed in this post, you should do so and assess your relationship with that person as well. Maybe getting a second opinion on your current investments would be productive if you’re not happy with how your current advisor is charging you.