How do YOU get paid? Kind of an awkward question to ask someone that you’ve just met, but this question shows up time and time again on “top questions to ask your Financial Advisor lists.” And it’s an important question to ask!
From my perspective there are two aspects to this answer:
#1. How the professional(s) you’re working with are personally compensated.
#2. How their company earns revenues.
#1. How the professional(s) you’re working with are personally compensated
There are a lot of different ways in which this question can be answered. You may need to consider the fact that different members of the team may be compensated differently as well. The answers could vary from set salaries, 100% commission based, salary with bonuses, or some combination. This varies from firm to firm and advisor to advisor.
As one example our long term employees at Merino Wealth are all paid on a salary while short term employees are paid hourly. This year all of us salaried employees are eligible to earn bonuses. I got a little creative with our bonuses so they’ll be in the form of incentive travel based on criteria that’s both tied to our practice’s annual goals along with our own individual metrics that are going to improve the practice. For example, my metric is to focus on replying to e-mails within 1 business day and Addie’s is based on reducing our processing paperwork errors.
#2. How their company earns revenues
This aspect of the answer is incredibly important because many times the way in which an advisor or company earns revenues is tied to the type of advisor you’re working with and the type of firm that they’re associated with. In order for revenues to be earned the firm is required to have certain registrations and the advisor will typically need to hold licenses. Licenses and registration are typically tied to the products and services they provide. I’m considered a fee based financial planner so the majority of our revenues are earned through the financial planning fees, which are flat fees that clients pay annually and the annual asset management fees that client’s pay in the form of a percentage of their account value at Merino Wealth. As a fee based advisor I can earn commissions from trades and products. At this point in time that’s a much smaller portion of our focus, but it’s still an important detail that I need to disclose with my clients.
In my opinion there’s no one right way for someone to get paid. What’s most important is that you’re working with a professional that can clearly articulate fees, expenses, and compensation. Along with that you need to comfortable with their answer and understand the value of the engagement. If the question “How do you get paid?” is answered in a manner that’s harsh or condescending consider that a red flag. It’ll be hard to share your hopes, dreams, and finances with someone who can’t answer this simple question.
The views expressed today are my own and do not necessarily represent the views of my broker-dealer, The Investment Center, Inc. or my Registered Investment Advisor, IC Advisory Services, Inc. The information contained is derived from sources believed to be accurate. However we do not guarantee its accuracy. The information contained is for general use and it is not intended to cover all aspects of a particular matter. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. The information contained is not appropriate, by itself, to guide investment decisions.
All Securities Offered Through The Investment Center, Inc. Member FINRA/SIPC. Advisory Services Provided Through IC Advisory Services, Inc. – An SEC Registered Investment Advisor. Jessica Merino is a registered representative of The Investment Center, Inc. Merino Wealth Management is not affiliated with The Investment Center, Inc. or IC Advisory Services, Inc.