All above-reproach financial advisors want you to know how they operate. They welcome detailed questions about the ins and outs of the investments they suggest and the expenses you will incur. Despite the awkward feelings, you aren’t being disrespectful by asking.
What are the tricks to get started? The way you ask the question can make a big difference. No need to be confrontational, just be transparent. Ask straightforward, curious questions. Work to create safety for the other person.
- “I’d like to be clear about how you’re compensated for the work you do for me.
How much of your compensation comes from my direct payments to you, how much from fees on my investment, and how much is paid to you by the investment product?”
Again, your goal is to create a conversation that allows them to just tell you about their arrangements—no accusations from you, no defensiveness from them. Another neutral question might be:
- “I’ve heard that it would be helpful for me to know if my advisor is a fiduciary or not? Can you explain the difference, and are you?” (Fiduciary means your advisor agrees to put your interests ahead of their own.)
They may make it hard for you, “Don’t worry about it. The fee isn’t coming out of your pocket.” This is the wrong answer. You may not write a check or hand over your credit card, but you are indeed paying. A Wall Street Broker laid it out this way. “An investor who paid 2% in fees each year would give up more than $178,000 over 30 years, almost as much money as the $180,000 deposited in the account during that time.” That amount of money is probably worth being a bit uncomfortable over!
If their answer is vague, they change the subject or don’t give you exact amounts, you’ll need to be even more straightforward. Again, keep in mind that a straightforward approach is the one that highest quality professionals prefer you always use, and they will also use it back. Try these questions:
- “I always want to know how my finances work, so please explain in detail the way you get compensated.”
- “I’m uncomfortable with not knowing the details. Please make them clear for me.”
- “How much money will you personally make in cash commission now, if I select this product? And how much will you make later, in any sort of ongoing or trailing commission?”
- “Are you earning more from selling me this product than you might if you put me in a similar product from a different company?”
- “Is there a bonus you are eligible for that comes as a result of this sale? Is your bonus less likely if you don’t make this sale?”
It may be uncomfortable to ask questions but it’s your right to know. For some people a light tone might be more comfortable, “Where are you going to go if you win the incentive for selling this product?”
Try asking your questions in writing.
Writing your question may be more comfortable. As a bonus, a written answer creates accountability for the advisor and lets them know you’re on top of things. If you don’t get a straightforward answer the first time, ask again until you do. Keep politely asking until you clearly understand.
If you feel uncomfortable and stuck, think about any question you might use to open up the conversation:
- How often do you monitor my investments?
- Why does this product benefit me?
- I don’t understand this portfolio. Please explain it to me.
- Please explain why you have me in this alternative allocation?
Still stuck? You can ask your other advisors for help. Request that your attorney and other advisers talk with one another. They should all be willing to keep each other in the loop. If someone isn’t, you can ask the others to help correct that situation immediately. (Many of the best advisors suggest having your team work together all the time—so efforts are coordinated in your behalf.)
It’s easy to let things slide and stay with a professional who may not be working in your best interests.
If you’re working too hard, it may be a clue that your advisor is not the best fit for you. If after a couple of tries you can’t get the information you need, it may make sense to interview another advisor to find someone who is easier to talk to.
Money conversations can be uncomfortable—so we tend to avoid them, approach them with trepidation, or use language that’s pushier than necessary. We can help you help you get more comfortable talking about money and craft conversations that work in your best interest.
We coach key personnel, train teams and work with people of wealth on dealing effectively with the emotions raised by money-related issues. You can get more comfortable so formerly awkward conversations no longer feel awkward.
For more information on fiduciary responsibility:
- Watch an interview I did with a fee only advisor, Gavin Morrisey.
- You can also check out John Oliver’s Fiduciary and The Retirement Challenge on You Tube. Language is crude at moments so don’t watch with young kids. I wonder if John Oliver can have clear, open conversations with his financial advisors?!