FAQ's

FREQUENTLY ASKED QUESTIONS

WHAT DO I NEED TO KNOW ABOUT A FINANCIAL ADVISOR?

Keep in mind that compensation is just one among many important elements that should figure into your decision about hiring a financial advisor.

Foremost, be sure that the advisor you choose uses the financial counseling process.  It includes addressing the current situation, setting goals, identifying alternatives, selecting and then implementing a course of action, and periodically reviewing.

This is a client-centered process, with a commitment by the advisor to put the clients interests first.

Education, credentials, references, trusts and rapport, along with a compensation method, is what you need to investigate before choosing a financial advisor.

All four compensations methods have their advantages.  You must choose the method which combined with the other qualities of the advisor you select, best meets your needs.

  • If you do not understand how your financial advisor is compensated, it is your responsibility and your right to ASK.
  • Question your financial advisor in as much detail as necessary until YOU are clear.  As a smart consumer, you want to know what you are buying and how much you are paying for it, and you are entitled to that information.

WHICH IS BETTER FOR THE CONSUMER, FEES OR COMMISSIONS?

The quality of a financial advisor's work is independent of the method of compensation used.  In other words, competance and compensation are independent of each other. 

No matter what the method of compensation, the possibility of conflict of interest always exisits.  It is essential that you have a strong sense of trust about the advisor you choose.  To establish that trust, you much check out the advisor thoroughly.  Find out the advisors background and credentials, get references (and call them) and ask for a sample of written recommendations provided by the advisor.

An advisor who is honest and straighforward about compensation gives you the information you need to make smart financial decisions.  Do not consider hiring a financial advisor who will not disclose how he or she is compensated.

Based on the information you gather, you should consider your overall comfort with an advisor.  If you do not feel completely comfortable telling your financial advisor everything about your finances, you cannot take full advantage of the planning process.

ISN'T A FEE-ONLY ADVISOR IN A POSITION TO OFFER THE BEST, AND MOST OBJECTIVE ADVICE?

The best advice takes into account all of your needs, goals, resources and desires.  Good advisors must be knowledgeable, ethical and trustworthy.  No matter how you pay an advisor, the quality of work depends on other factors.  An understanding and concern for your best financial interests is most crucial to receiving quality financial advice.

DON'T FINANCIAL ADVISORS WHO RECEIVE COMMISSIONS HAVE A SERIOUS CONFLICT OF INTEREST?

It is a question of integrity.  Industry research shows that consumers rate "trust" and "ethics" as the most important elements in their relationships with financial advisors. In fact, survey respondents gave this response twice as often as they mentioned good advice and expertise.

If your first choice is a financial advisor who works on a fee-plus-commission basis and you are concerned about the possible conflicts of interest, you can implement the advisor's recommendations yourself or through someone else.  Simply let the advisor know you do not intend to purchase products directly but would prefer recommendations on a fee basis.

WHICH ADVISOR IS BEST FOR PEOPLE OF MODEST INCOME?

Generally, fee-and-commission or commission-only advisors work with people of modest means.  Typically, fees paid working with a fee-only advisor generally make the financial counseling process prohibitively expensive for people with modest incomes.  However, there are exceptions to this rule, so be sure to interview advisors and ask them about your concern.

WHAT DOES A TYPICAL FINANCIAL PLAN COST?

Fees vary widely depending on the complexity of your financial situation, the area of the country in which you live, and the financial advisor or firm with who you work with.  If you are single, with no dependents, a limited estate and straighforward goals, you will likely pay a lower fee for a plan than someone with a more complex financial situation will.