Choosing a Financial Professional – The Common-Sense Way

Choosing a Financial Professional – The Common-Sense Way

A week or so ago, I was contacted by an old acquaintance who wanted my opinion on whether his 70-year-old aunt should consult with a fee-based financial professional or one who is paid on commission? Before I could respond, he proceeded to inform me that, based on his research, they were leaning toward the fee-based advisor.

Quick side note: Generally speaking, fee-based advisors are paid a percentage of the money that you invest – commonly called money-under-management – for as long as you keep your money with that advisor. Commissioned folks, on the other hand, receive a one-time commission check up front.

As with most things, each of these options has pluses and minuses. But the fact of the matter – and the point I’m trying to drive home here – is that there is no litmus test in this regard, absolutely NONE! Obviously, how an advisor gets paid is important. But let’s leave the emotion out of it for just a moment to consider this: Is the way an advisor gets paid the best barometer of his or her effectiveness/ability to deliver the products/services you need?

Personally, I think other critical aspects should guide whom you hire. How about personal integrity, real-life expertise in successfully delivering the kind of results you’re seeking, and regulatory oversight issues? As I said earlier, the mode of compensation is important, but we must be careful not to let it crowd out other equally – if not more – important issues for consideration.

As my acquaintance admitted, he reached out to me because he was getting a bit confused sifting through the myriad viewpoints around which route his aunt should take.

My first question (after asking him how he’s been) was: What, specifically, is your aunt looking to accomplish? As it turned out, all the “drama” was completely unnecessary because his aunt was interested in buying a Single Premium Immediate Annuity (SPIA). Whoever winds up selling it to her will be paid a commission, because that’s the ONLY way a SPIA pays the professional involved. When the place you’re travelling to doesn’t have a train station, why would you spend hours trying to decide whether to drive or take the train?

Every situation is different, and therefore demands a different evaluation process, but the takeaway here is that there’s no cut-and-dried litmus test on one advisor being better than the next solely based on how he/she is paid – not to mention that, as in this case, such a comparison may be moot.

Now in the interest of full disclosure, in case you were wondering which model I fall under: Depending on the particular service or product for which you engage me, I could be fee-based, commission-based, or charge a flat-fee.

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