Adviser Motivations & The Important Questions to Ask

I continue to talk with people who have no idea of their costs for financial advice or investment advice. Many are beginning to wonder what are the motivations a fiduciary adviser has so questions begin to form.

“Are his/her interests aligned with mine?”

“When he or she is making a recommendation, is that for my benefit or for their benefit?”

Not all business models are the same in the financial advice industry. There are substantial differences, and I think people should understand these differences so they can choose which financial business model they prefer. In my opinion, the financial advisory community has done a poor job of transparently communicating costs – and, therefore, adviser motivations – to consumers. In fact, some may wonder if these “hidden costs” (as some refer to them) were purposely developed to be difficult to uncover?

Here are a few questions you may want to ask yourself to better understand a financial planning business model and, ultimately, his or her motivations. This is not an exhaustive list, but it may be a good start.

  • How is the financial adviser paid?
    • Is he/she paid a commission to sell me financial and/or insurance products?
      • If he/she is not paid for financial planning services, how motivated is he/she to stay abreast of valuable planning strategies and techniques and how motivated is he/she to provide ongoing planning services?
      • Is he/she motivated to understand my complete financial life or is he/she only motivated to understand parts that could create sales commission for themselves?
      • How much commission does his/her recommended product pay vs. a similar product?
      • Will he/she be tempted to offer high commission products vs. similar lower cost products?
      • Is he/she limited in product availability based on their commission-based structure?
      • Is he/she selling me something that their company no longer wants to own (creating a buyer for a sale)?
      • What is my cost? Is it reasonable and comparable to what I may pay elsewhere?
      • Must he/she meet regular sales quotas?
      • Does he/she receive additional compensation from selling a certain amount of one particular product vs. other similar products? (If they sell enough of Product X, will he earn a trip to Hawaii?)
      • If he/she later recommends changes, will they receive additional commission that will cost me more?
      • Am I “locked into” any of the products that would create additional costs if I later sell?
      • Do my costs remain if I no longer use their services?
    • Is he/she paid a fully disclosed fee only for their financial planning advice (no product sales)?
      • Is this fee only for investment advice?
      • Will I pay for valuable ongoing planning advice also?
      • Do my costs remain if I no longer use his services?
    • What is the adviser’s official title and what are the adviser’s credentials?
      • Registered Representatives, according to the Financial Industry Regulatory Authority (FINRA), are “the sales personnel whom most people call brokers.” Source: http://www.finra.org/investors/brokers
      • If their title is Investment Manager, Investment Adviser, Investment Counselor, or something similar, is he/she motivated and qualified to provide financial planning advice (vs. only investment advice)?
      • What is the adviser’s educational background?
      • What credentials/designations/certifications has the adviser earned? Is there merit to this credential?  Additional information can be obtained here: https://www.sec.gov/investor/alerts/ib_making_sense.pdf

There are many other questions that should be asked (has disciplinary action been taken against the adviser?), but this list may start to highlight adviser motivations.

The final question one may also want to ask is this. Is the adviser legally required to act in my best interests at all times?

Our Indiana fiduciary adviser firm is dedicated to providing transparency, clarity and confidence to our clients so they can lead their best lives and leave powerful legacies. We’d be honored and privileged to start a conversation today to provide the same to you.

To speak about your personal situation you may contact me directly at 812-602-6307 or via email at twprather@paynewealthpartners.com. Alternatively you may just wish to visit our website at www.paynewealthpartners.com.


start-the-conversationTerry Prather

Published: February 15, 2017

Author: Terry Prather, CFP®, ChFC®, MSFS

Email: twprather@paynewealthpartners.com

Phone: (812) 602-6307

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The information in this material is only as current as the date indicted, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements.

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