MoneyDo: Ask Your Financial Advisor 5 Questions
The way today’s laws are set, it’s your job to determine whether your advisor is truly working in your best interest or not.
It shouldn’t surprise you to learn that a majority of financial professionals have no professional obligation to act in your best interest. Make sure you’re getting advice from a fiduciary – someone committed to acting in your best interest.
Make sure to ask your financial professional these questions, and be careful to distinguish direct responses with lengthy answers light on detail.
- Does anybody else ever pay you to advise me? And, if so, do you earn more to recommend certain products or services?
Advisors should be transparent in describing how they are paid, including commissions and fee structures.
- Do you participate in any sales contests or award programs creating incentives to favor particular vendors?
We’re all human. The right incentive often will turn heads – and financial advisors are often offered some incredible rewards for influencing or guiding you to a specific investment or product.
- Can you tell me about your conflicts of interest, orally in and writing? (No adviser should deny having conflicts)
- Are you an insurance broker or an agent?
- Experts agree that an agent –whether independent or captive—is primarily an agent of the insurance company they represent. In a fiduciary duty lawsuit, liability typically defaults to the insurer if the producer involved is determined to be an “agent.”
- Brokers, however, owe their allegiance to the client. In other words, they are an agent of the insured and owe fiduciary duty to that client. This is someone who cannot bind the insurance company but in fact represents the client as they purchase insurance.
- Will I be working with a team? If so, can I meet them?
You’ll hear advisors boast about a team, but sometimes they’re referring to support people who work in distant offices as part of a massive corporate structure.
While there are many more questions that will help to illuminate how the financial adviser does business – for example, they may custody funds themselves, which can present a possible conflict of interest – these four questions will spark a healthy conversation about how he or she makes money.
