The most important question to ask your potential financial planner is very basic but almost no one asks it.
It should be the one of the first things you ask someone who is handling your money.
Who else pays you? Financial planners fall into two basic categories.
Fee based and fee only.
A fee based financial planner can charge a fee for their services and can also make a commission based on their recommendations.
This should be a red flag and one which needs to be totally and completely disclosed.
The planner should ask you the questions necessary to make any sound recommendations.
This is a very basic approach to the business relationship and one required by any sound approach.
With these questions a sound solution should evolve to help the client complete their financial goals.
The question is why are the recommendations being made and are the recommendations at an arms length? Any recommendation made by a fee based planner can also provide compensation for the planner.
A fee only planner is just that, fee only.
A fee only planner will develop the plan and attempt to provide the client with the solution for the desired goal.
The planner is paid a fee for their plan and their advice just as you would pay your doctor or attorney.
It is clearly and arms length approach.
How do we protect ourselves against advice that is in the planners best interest instead of yours? Ask? Ask the planner if they are receiving additional compensation from the source of the investments.
Make certain you are fully disclosed of all aspects of fees and expenses that your account is subject to.
Which is better, fee based or fee only.
Common sense would dictate that the lower the fees the better but that is not always the case.
Ask for references and ask the planner for their view of investment risk and reward.
Make certain the plan makes common sense to you and always ask what happens if you decide to end the business relationship.
A great source of information is the Certified Financial Planner Board of Standards.
www.
cfp.
net.