Many people call themselves “financial advisors,” but there can be significant differences among them. No education, experience, or testing requirements are needed to call oneself a financial advisor. Whether you are getting advice from a financial planner, wealth manager, stockbroker, insurance broker, accountant, or other type of advisor, here are several questions that you should ask before deciding to do business:
Is the advisor an RIA? An RIA (Registered Investment Advisor) has passed a rigorous exam and is required, by law, to adhere to certain requirements, including:
How is this advisor paid? Does the advisor receive commissions, charge a fee, or both? Make sure that you ask enough questions to obtain a clear understanding of how the advisor is paid, before you become a client. Be wary if the advisor is evasive, gives confusing answers, or refuses to tell you.
Anybody who provides financial advice to you, and/or helps you invest your money, is getting paid by you in some way. If you have the impression that there is no charge for such “advice”, begin asking questions.
How much will I pay this advisor? An advisor who is “fee-only” (does not sell products nor earn commissions) should be able to clearly tell you – up front – how much the fee for his or her services will be. If the advisor is paid all or in part on a commission basis, you should understand how much the commission percentage is, what it is based on, and if it is up front or deferred. Also, are trailing commissions built into the annual mutual fund expense ratio, and if so, how much are they?
Knowing the answers to all of these questions will help you to make a wise and informed decision that is in your best interests, not someone else’s.
(Note: Mentor Capital is a “fee-only” firm and an RIA.)