I remember being told during broker training for PaineWebber (now UBS) that if a prospect asked about fees or commissions that I was to basically show them the door. PaineWebber’s stance was that clients who bickered about fees weren’t going to be good clients. Of course there will always be people who want to get something for nothing. Those people do make poor clients because they simply don’t respect the work that the advisor does.
However, I have to totally disagree with PaineWebber’s stance. I think it is very important for clients to know how much they are being charged and HOW they are being charged, especially if commissions are involved. Why? Because there can be a huge conflict-of-interest involved when a broker recommends one product over another. Kirk, a fee-only financial planner and blogger, illustrates this point as it regards to the subprime mess.
It’s unfortunate that people can’t simply trust that their advisor is going to do what’s best for them. But, that’s the way it is.
Here’s a few questions I would ask as it pertains to hiring a financial advisor (there are more, I’m sure. These are the few I could think of off the top of my head):
1. How will you get paid for your advice?
2. How MUCH will you get paid for your advice?
3. Are there cheaper viable alternatives to the products you are recommending?
4. What share class are you suggesting I invest in? – Although I think it is somewhat rare these days, some brokers will claim that B and C share mutual funds are no-load. That’s a lie.
5. What are the ongoing fees associated with this product? How much will it cost me per year?
6. How can I be sure that you won’t forget about me after you have made the sale and have collected your commissions?
7. Is there a surrender period for this product? If so, how long is it, and how much is it?
If you are talking to a mortgage broker, you might want to ask:
1. What was my credit score? – I think you should know this information BEFORE you go and talk to a banker or mortgage broker. If they give you a number that is significantly below the number you obtained, call them on it.
2. Is this the best product for my needs? What alternatives do I have?
3. Is this considered a subprime loan? – if the rate is significantly higher or lower than 30-year fixed rates, let it be a warning sign. If it is lower, it’s probably a teaser rate, which will go up in the future.
4. How much are you getting paid for this loan?
5. Does your commission depend on the type of loan you sell me?
6. Who is the lender behind this loan?
Like I said earlier in the post, these are a few questions I could think of off the top of my head. Here’s a more extensive list from the SEC.