Know the right questions to ask of a fee-only financial advisor

Couple getting financial advice from consultant at home
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Money expert Clark Howard puts a lot of emphasis on you taking control of your financial future by investing.

When you’re younger, starting out by contributing to your company’s 401(k) or to a Roth IRA that you start yourself is a great idea. Doing so lets you take advance of a “passive investing” style — a term that’s all the rage these days in financial circles.

Passive investing simply means you’re putting your money into funds that track an index — instead of paying for a stockbroker with a fancy cigar to pick investments for you.

One example of an index fund would be a total stock market index fund.

An index fund such as this would typically take your money and spread it out among 3,000 or so companies. You would own little slices of all those companies, which insulates you from the volatility associated with investing too heavily in any one part of the economy.

But the older you get, the more you might consider working with what’s called a fee-only financial advisor.

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Fee-only advisors are great…if they’re truly fee-only

A fee-only financial advisor is someone who earns a flat fee to structure a financial plan or portfolio on your behalf. Basically, they manage your investment money.

Fee-only advisors are not supposed to steer you toward investment that might have a high commission for them, but that might only be marginally suitable for your investment goals.

That’s how it works in theory anyway. But financial writer Jason Zweig is out with a new warning in The Wall Street Journal.


Zweig reports that because there’s no real legal definition of “fee only,” the term can be used pretty loosely.

An estimated 11% of certified financial planners who say they are fee-only could also get commission while working at large brokerage firms, according to recent data he cites.

In fact, Zweig notes that recent disciplinary actions were taken by the Certified Financial Planner Board of Standards against financial advisers who allegedly claimed to be “fee only” were also getting commissions.

So what’s an investor to do when somebody says they’re one thing, but could in reality be another?

In a word, the answer is ask a lot of questions of a fee-only adviser before you begin working with him or her!

You want to be sure someone is not secretly getting commissions while loudly proclaiming themselves to be fee-only.

Zweig lists the following questions as a starting point. The most desirable answer you would want to hear to these questions are in parenthesis:

  • Are you always a fiduciary, and will you state that in writing? (Yes.)
  • Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? (No.)
  • Do you participate in any sales contests or award programs creating incentives to favor particular vendors? (No.)
  • Will you itemize all your fees and expenses in writing? (Yes.)
  • Are your fees negotiable? (Yes.)
  • Will you consider charging by the hour or retainer instead of an annual fee based on my assets? (Yes.)
  • Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? (No.)
  • Which professional credentials do you have, and what are their requirements? (Check out our recent article on how to verify credentials.)
  • Who manages your money? (I do, and I invest in the same assets I recommend to clients.)

View the complete list of 19 questions to ask a fee-only financial advisor on The Wall Street Journal website.

Meanwhile, we came across this helpful tweet with offers an additional pointed question to ask:

RELATED: Sorting through the alphabet soup of financial advisor designations


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