Q&A: Do Others Stand to Gain from the Financial Advice You Give Me?

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In the CFP Board’s “Ten Questions to Ask Your Financial Advisor ” they suggest, “Before establishing a relationship with a financial planner you will want to interview several people to make sure they’re the right match for you and exhibit key traits of a good advisor. Here are 10 important questions to ask before selecting a financial planner.”

In this series we are both providing an answer for Marotta Wealth Management as well as giving a longer analysis about the question, why the CFP Board may have included it, and how other organizations might answer if they were being truthful.

The ninth question is about incentives. The CFP Board likely includes this question because conflicts of interest is a major focus of both regulation and codes of ethics in financial planning. The question focuses on compensation (who stands to gain) because that is a major source of conflicts of interest. If professionals get commissions from the products they sell you, then they have an incentive to sell you the ones that get the biggest commission even if they are not in your best interests.

9. Do others stand to gain from the financial advice you give me?

Ask the planner to provide you with a description of his conflicts of interest in writing. For example, financial planners who sell insurance policies, securities or mutual funds may have a business relationship with the companies that provide these financial products. CFP® professionals agree to abide by a strict code of professional conduct and have an ethical obligation to put your interest first when delivering financial planning advice and services.

We are fee-only financial planners and receive no other form of compensation other than the fee our clients pay.

If a firm does not mention “fee-only” in response to this question they may be dodging the fact that they receive commissions.

I’ve seen firms answer this question by saying that they have designed their practice to avoid conflict of interests and that they are fee-based. Neither of these answers are reassuring. You can’t design your practice to avoid conflicts of interest when you stand to gain from the financial advice you give to clients. No matter how hard you claim to ignore those incentives, the fact that there are incentives means you have a conflict of interest. Refraining from acting on the conflict is not the same as avoiding the conflict. You can’t avoid it, you can only disclose it and not act on it.

As fee-only financial planners, we receive no other form of compensation other than the fee our clients pay.

We believe this policy helps mitigate the conflict of interests inherent when a firm receives compensation based on the sale of specific securities or investment products. We do not receive any payments or commissions from fund or insurance companies. Our only compensation is from the clients we serve. As such we have every incentive to keep your fund and brokerage costs as low as possible in order to keep the returns you receive as high as possible.

You deserve advice from a firm where you don’t have to second guess where their loyalties lie.

Give us a call to get started today!

Photo by Satyawan Narinedhat on Unsplash

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.

Follow Megan Russell:

Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.