Tough questions to ask before engaging a financial advisor

You’ve scrimped, saved, and stashed it away.  Years of punching the clock, packing lunches, saving receipts, and turning in expense account vouchers have left you with a handsome sum of money you plan on using to meet your retirement needs.

Years of disciplined saving and well-considered price-shopping have earned you your nest egg. When you’re ready to enlist the help of a financial adviser in managing your money, wouldn’t it seem reasonable to ask what you will be paying for the service?

Too few investors ask the difficult questions of their advisers, and much of the time, it is the answers to those unasked questions which could mean the difference between achieving your savings and investment goals and falling short.  You, the investor, should know that you always have the freedom to decide how you are going to pay for the services you are receiving.

Four letter word

The “fees” referred to in the world of “fee-based” financial management is simply a percentage cost imposed on an account as it is being managed.  This billing structure disallows an adviser or money manager from taking a commission on each trade that occurs within the account.  This has the dual effect of clearing the way for money managers to make as many trades as necessary in fee-based accounts, and it also takes the incentive out of unnecessary trading which might otherwise occur in commissionable accounts.

For example, if a portfolio of $1 million is being managed with a 1 percent annual fee, then the account would be debited $10,000 annually in order to pay for the money managers and financial advisers doing the work for you.  Often these types of accounts don’t even charge a transaction cost for each trade, thus creating a simple and transparent structure for the management and billing of the accounts.

When advisers are paid the same percentage fee for their services regardless of the type of account or management strategy they propose, their clients know that they are getting clear-headed guidance which serves the client’s best interests.

You’ve heard about the “fee-only” adviser.  They tout their “fee-only” status on radio ads, in television interviews, on billboards, and in magazine advertisements.  Some of these advisers write columns just like this one in your local paper, and many of them seem to fly the “fee-only” flag as if it were the last bastion of reasonable billing procedures in the word of retail financial guidance.

But do you really know what “fee-only” means?  Don’t be embarrassed to admit that you don’t, in fact, there’s no need to admit anything.

Fee-only advisers will typically manage money for their clients only if they are able to work on the fee-basis described earlier. What this means is that they generally only ever charge an ongoing percentage cost for the management of the portfolio, and they never earn a commission from their money management services or other products.

Many “fee-only” advisers are licensed in such a way that they are unable to provide their clients access to commissionable products even if they believe them to be suitable investments.  This means that a whole host of creative and ancillary strategies to which many investors may prefer access may simply not be discussed or proposed.

Those advisers who hold themselves out as “fee-based”, as opposed to “fee only,” often still have access to those additional products.  This may translate into more product offerings, but with it comes the necessity for total fee and commission transparency.  Meaning, all investors have a right and responsibility to know what their adviser is getting paid.

Transparency

Regardless of the type of adviser you are working with, it is my firm belief that all investors should demand fee-transparency and all respectable advisers must provide it. Whether or not your adviser chooses to work on a fee-only or simply a fee-basis, you should feel comfortable enough with him or her to be able to broach the topic of fees and commissions so that you understand exactly what it are you are getting.

Just as you wouldn’t hire an attorney without understanding his billing procedures, you shouldn’t entrust anyone to grow and protect your money without knowing what you’re paying for the service.

Anthony M. Conte is Managing Partner at Conte Wealth Advisors with offices in Camp Hill, Pennsylvania and Fort Myers, Florida.  He has a Master’s Degree in Financial Services and the Certified Financial Planner™ certification, and he welcomes your emails: tconte@contewealth.com .

Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.  Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a registered investment adviser.  Cambridge and Conte Wealth Advisors, LLC are not affiliated.

Anthony M. Conte is Managing Partner at Conte Wealth Advisors with offices in Camp Hill, Pennsylvania and Fort Myers, Florida. He has a Master’s Degree in Financial Services and the CERTIFIED FINANCIAL PLANNER ™ certification, and he welcomes your emails: tconte@contewealth.com

Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors, LLC are not affiliated.

The opinions expressed in this column are solely the writer’s and do not reflect the opinions of PennLive.com or The Patriot-News.

Before acting on any financial advice, readers should consider whether it is suitable for their circumstance and consider seeking advice from a financial or investment adviser.