February 6, 2009, 6:00 am

Is My Financial Adviser Playing Me? Part 1

by: The Financial Blogger    Category: Financial Planning,Personal Finance
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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 😉

For example:

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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Comments

Transparency is always a great policy. That’s why I always bring this up on first appointments and let them know without them even asking.

Good subject! Actually I need to meet my financial planner really soon!!! For me it’s like going to the dentist, I don’t particularly enjoy the moment… (sorry TFB I’m sure you love your job) Anyways, she’s a really good financial planner; however she only can sell my bank’s products…

I am wondering if all type of financial planners is all licensed to sell me investments directly. Can they sell other than their “house” products? 🙂

Thanks again!!

N.B. l’ll keep you posted, but I’m a bit shy to ask her salary… although she knows mine….

by: The Financial Blogger | February 6th, 2009 (1:10 pm)

Richard,
I think that considering what is going on these days (fraud, crisis, etc), tranparency has become the #1 critera to select a good financial planner!

Sophie,
if your planner works for a bank, chances are that she can only offer “in house” products. However, she may be wise (as me ;-0 LOL) and find a way to offer you all products on the market. This is actualy what I do through a partnership with a broker (very few people work like this in the Canadian industry for the moment).

If you are too shy to ask her how much she makes, you can at least ask her how her income structure works (based salary, commission, bonus on specific products, etc.).

let me know,

TFB.

TFB, I will agree.

Sophie, they (we?) are dealing with your money. You have every right to know how they get compensated and what they will make off of you.

I encourage you to ask.

Hi all,

Finally I asked my financial planner how much she makes. And she couldn’t answer the salary. But like you suggested I asked her income structure. I think I was not surprised with her answer: base salary and bonus based on the net growth of her portfolio. I think this type of remuneration is a good way to serve your client!

However she was still trying to sell her “house products” (I told her that I find it was pretty annoying). Anyways, overall I think it went well and she is really nice but actually I am in the process to change my financial planner to have someone that I trust and that I believe the person can help to achieve my objectives 😉

Thanks!

Sohpie,

Since she is salary, it makes sense that she can not publicly say what she makes. It’s actually illegal to even ask when someone is hourly/salary in some US States. (not if they are hourly/salary, but what they make). It can be volunteered though.

Good luck on finding a new one you can trust. Their are plenty of sharks out there (met a few face to face), but there are some gems as well.

Thanks Richard for your advice. I’m sure there are lots of good financial advisor, but it’s hard to find the ONE (financial expert, financial planner, funny, competent, efficient, someone that I can work with and be confortable with).

Also, it takes years to build a strong relationship with a trusted financial planner. I heard there’s lots of turnover in the industry. And what I don’t want is to start over again with someone new or to follow the trusted planner by moving my assets to his/her financial institution…

Do you think that good ones are usually for high wealth individuals (which I’m not, I’m in my early career with some savings, in the process to buy a new house)?

Funny is a requirement? Damn, that means I’m out, I got now sense of humor. Just ask TFB. 🙂

The high wealth individuals usually use multiple people (unless they do it themselves) to handle their stuff.

One thing I should point out, take any title’s and credentials at face value. Anybody can get one by doing a little bit of work and paying some fees. You can be the owner of a business with no background and $11 at the county court house. You can be a CFP by having a bachelor’s degree (no requirement that I saw for field), taking some weekend courses, and paying about $500/yr. The other requirements to become one, you have 5 years from the application to get. One of which is showing 3 years of experience. You have 5 years to show 3 years of experience.

And to be perfectly honest, with a little education, you can do it yourself and don’t need a person working for you. It helps, but not needed.

I wish you luck.