Isn’t that a great question to ask yourself just before your annual meeting with your financial adviser / banker for your rrsp contribution? I can tell you that giving the current market conditions, there are several people thinking they are being fooled by someone!
One reader had a similar comment on my recent post about insurance product for debts. He was wondering how he can determine if his financial adviser was really offering a product for him or for he is simply trying to make a commission off is back. The funny part is that, in the end, the financial adviser always makes a commission of your back 😉 (he still have a mortgage to pay off and kids to feed, right?… well I do 😉 ).
However, there are some tricks to know if your financial adviser is telling you the truth or not. We are starting this new series today with a simple question with a long answer:
What is your salary structure look like?
This is one of the very first questions to be asked to any financial adviser. You need to know how the guy in front of you can afford so many suits and ties 😉 However, there is no white and black answer as each bonus structure could influence him on one way or another. On the other side, you will be in a better position to know when his integrity is at risk 😉
If your financial advisor is paid on commission only (independent representatives, self employed financial planners and brokers work on a 100% commission income), he will be much more aggressive to get your money since it’s the bulk of his pay check. He might be influenced on his payout commission which would be higher on specific products (in-house product for example) than others. Depending on your size (i.e. amount invested and future potential), you might because is 345th priority of the day 😉
Your financial advisor can also be paid 100% through a fixed salary. While client size and type of financial products won’t influence him, he might not be the most proactive person on earth. In the end, regardless of what is happening with you and your investments, he is still getting a full paycheck. As long as there are no written complaints, he can get away with pretty much anything.
Then, you have hybrid financial advisor. They have a based salary and a considerable commission based on several items (net growth of their portfolio, new money, number of other financial products such as insurance, credit, bank accounts, etc.). This is an interesting way of paying financial planners as they have the possibility to live with a decent based income or to outperform and get them a newest BMW with their year end bonus check. I would suggest asking several questions on this specific type of financial advisor in order to know what pays the most for him and what not.
There are good and bad points to each type of remuneration. However, if you are aware of how your financial adviser is compensated for his work, you will be in a better position to judge if he is fooling around with you or if he gives true and sincere financial advices.
And don’t be afraid to ask your financial advisor how much he makes. He won’t have to tell you his final income but he will have to disclose his sources of income and how his pay check works. After all, why are you sitting in from of him bare naked while he can keep his jacket on? Transparency is gold when it comes down to personal finance!
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