A. When you open a new account with a financial adviser, you will typically receive a stack of documents that explain, among other details, how the adviser gets paid.
But it seems few people understand this information.
A recent study by research firm Cerulli Associates found that investors, when asked what pay model their financial adviser uses, rarely knew. One-third of those surveyed said they weren't sure how they paid for the advice they received, and 29% said the services were free, which is rarely the case.
In my opinion, you should ask the following three question to any financial adviser you are meeting with:
1. How are you registered?
The distinction in how advisers are paid could affect the advice they give you. Regulations require financial advisers who charge commissions to make sure a product is appropriate for an investor before selling it; fee-only advisers are paid only by their clients, which means they have no incentive to sell you particular financial products.
2. What am I paying you and your firm directly?
3. What payments are built into the products I may buy from you?