Which is the best way to compensate someone who helps you with your investments/finances? Would paying per transaction be best or via a percentage of the assets? Do you think the advisor could be objective if he or she would earn a commission investing your assets in a product?
These are all great questions and important ones’ consumers need to ask an investment firm before doing business. In an environment like we’ve been in the past 18 months, investment management fees and commissions can eat up your annual returns or your net investment. I believe the best way to compensate an investment firm is hiring a fee based financial planner who doesn’t earn commissions-one whose own income is based on the value of your account (this means if your account is lower, their income is lower and vice versa).
Another important thing to watch is what type of investments your financial advisor will be investing your money in; stocks, bonds, mutual funds, Exchange Traded Funds (ETFs) or annuities. If stocks and bonds, then you may have fees per transaction. If the choice is mutual funds and/ or ETFs, you’ll have recurring annual fees. It is important to know how the advisor will be allocating your investments to keep track of these fees.
All in all, do your due diligence before hiring an investment firm by interviewing three firms about how they are compensated AND what services you will receive. Ask them if they will be giving just investment advice, or do they specialize in other areas such as estate planning, tax planning or even risk management, such as life insurance. How much experience does the advisor and key people have in all of these areas, what designations do they hold… CFP®, CPA, ChFC, CFA etc.? Ask the tough questions as you will be glad you did before making one of the most important decisions of your life.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal.