How do financial advisors get paid?
And what value can they provide?
How to ask the compensation question
Ultimately, it’s up to you to choose the best financial advisor for you. But here’s an important caveat: When you ask how the financial advisor gets paid, be sure to ask the question correctly. Do not ask, “What’s your fee?” If you do, he or she might reply, “Well, my fee is 1% of the assets under management.”
The problem: That’s an incomplete answer. The advisor might leave out the fact that the mutual fund being recommended charges an additional fee – meaning your total cost may be more than 1%.
That’s why you should instead ask, “If I hire you, how much will I pay all in?” Or “What will be my total cost for all expenses – your fee plus the cost of the products you recommend?”
With the appropriate wealth management, the total value of the advice you receive – from the convenience of not having to do all the work yourself to the ongoing access to comprehensive financial planning – should certainly make the fee worthwhile.
It’s also vital to ask what the total services are that you will receive. It’s not enough for an advisor to help you with your investments. Ideally, your advisor should provide you with comprehensive wealth management services – help with employee benefits, insurance and tax planning, mortgages, estate planning, investment advice and portfolio diversification, college planning, elder issues and much more.
That’s what we provide for our clients here at Edelman Financial Engines.
So shop around – and be sure to get complete compensation information from anyone you interview and find out whether their goals are aligned with yours. We’re always happy to provide a no-cost, no-obligation consultation to help pair you with the right financial planner for all your wealth management goals.