Here are a few questions to ask your financial advisor that will help you identify whether he is getting an additional payment incentive from equity mutual funds.
Question: What commission did you earn on the stocks you sold me?
If your financial advisor says "none," that doesn't mean he/she is still not making additional revenue from your portfolio. You should also ask your advisor if he/she is earning a "markup" or "spread" from your funds.
"You told me I paid no commission on the bonds or mutual funds you bought for me? Did you earn a "markup" or did I pay any of "spread?"
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It's important to make sure your financial planner is aligning his/her financial goals with your goals. This is another way to make sure your financial planner has your interest at heart.
Question: Would you be willing to show me where your money is invested?
If your financial planner is in the same investments, you know he believes in that investment strategy, otherwise, he wouldn't risk his own capital. But don't be alarmed if your advisor is not in your same portfolio. He/she may have different short or long-term financial goals.
Question: Would you be willing to get paid only if my portfolio makes money?
The financial industry hates this fee-model structure because it shakes the current system and forces financial advisors to perform, but it is one of the best ways to keep your financial planner honest and transparent.
Look for a pay-for-performance financial planner and yes, they do exist. This is how my firm, Sag Harbor Advisors, gets paid. Under this financial model, your advisor only gets paid if he makes you money. If your portfolio loses money, he doesn't get paid. Under this structure, there is no way to hide the fees, commission or "kickbacks" that an advisor receives from the financial industry.
Commentary by James Sanford, a portfolio manager for Sag Harbor Advisors (www.sagharboradvisors.com). He has also worked with Credit Suisse Securities, JP Morgan Securities and Gleacher & Co.